THE  GIFT  OF 
MAY  TREAT  MORRISON 

IN  MEMORY  OF 

ALEXANDER  F  MORRISON 


-..■'■■  *■■-'. T-,      ♦.. 


*/' 


THE  RAILWAYS  AND  THE  EEPUBLIC 


BY 


JAMES  F.  HUDSON 


NEW    YORK 

IIARPEK    &    DROTHERS,    FRANKLIN    SQUARE 

1  88G 


Copyright,  1886,  by  Uarper  &  Brotuers, 


AU  righu  rejerccd. 


2 

O 
t 


COKTENTS. 


CUAPTEU  PAGE 

I.  The  Problem  of  Railway  Domination  ....       1 
3?         II.  Ten  Years  of  Discrimination 25 

N 

^       III.  The  History  of  a  Commercial  Crime     .     .     .     .  G7 

IT.  The  Laav  and  the  Railways 107 

V.  Public  Obligations  and  Corporate  Practices    .  155 

O       YI.  The  Pooling  Policy 195 

OS      YII.  The  Fictitious  Element  in  Railway  Policy.     .  251 
<3 

_     YIII.  Competition  versus  Combination 287 

^        IX.  The  Discussion  of  Remedies 31G 

^  X.  The  Public  Highway 368 


XI.  Corporations  in  Politics 449 


432954 


THE  RAILWAYS  AND  THE  REPUBLIC. 


CHAPTER   I. 

THE   PROBLEil    OF    KAILWAY    DOillNATIOIS". 

A  NEW  social  power  sometimes  rises  to  immense 
proportions  before  its  nature  and  effects  are  under- 
stood. The  full  bearinsr  of  its  heretofore  unknown 
forces  upon  future  generations  can  then  be  learned 
only  by  experience.  The  media) val  rulers  who  first 
organized  their  realms  into  feudal  holdings  saw  only 
that  the  barons  would  afibrd  military  protection  against 
savage  enemies,  and  preserve  order  among  scarcely 
more  civilized  subjects.  But  they  hardly  dreamed  of 
the  rise  of  powerful  feudal  princes  whose  power  would 
be  greater  than  the  throne  from  wliich  they  obtained 
it,  and  who  could  set  up  and  pull  down  kings  at  their 
win.  The  men  wlio  first  wrote  pamphlets  in  favor  of 
education  and  justice  for  the  lower  orders  of  France 
could  not  foresee  the  terrible  outburst  of  popular 
streno;th  which  was  fated  to  involve  in  one  common 
destruction  Ijoth  the  instrumentalities  which  had  main- 
tained oppression  for  centuries  and  tlie  men  wlio  had 
made  the  first  uncertain  steps  towards  asserting  the 
rights  of  man.  Watt  couhl  see  in  the  steam  which 
lifted  the  lid  from  the  tea-kettle  a  force  which  miglit 
yi^ld  man  some  aid  in  his  labors;  but  lie  could  not 

1 


2  The  Eailways  and  the  BepuUic. 

foresee  the  immense  application  of  that  force  to  every 
phase  of  life.  He  could  not  dream  of  the  millions 
of  factories,  the  thousands  of  steamships,  or  the  myr- 
iads of  i-aihvay  trains  that  lay  dormant  in  his  discov- 
ery. Still  less  could  he  foresee  the  darkened  skies 
of  Birmingham  and  Pittsburgh,  or  the  destructive 
power  which  would  doom  hundreds  of  thousands  to 
ngonizing  tortures  or  horrible  deaths  as  the  result  of 
cupidity  or  carelessness  in  the  employment  of  the  power 
which  he  found  under  the  lid  of  that  insii^nificant  tea- 
kettle.  Experience  can  alone  reveal  the  extent  of  the 
benefits  which  new  ideas  or  agencies  bring  to  the  world. 
How  much  more  is  it  true,  that  the  evils  to  result  from 
the  perversion  or  abuse  of  such  great  forces  can  only 
be  learned  by  their  actual  occurrence.  This  can  be 
seen  from  the  earliest  growth  of  social  organization 
throughout  all  history ;  but  the  lesson  was  never  writ- 
ten in  plainer  characters  than  in  the  development  of 
the  vast  railway  systems  which,  in  the  last  half  century, 
have  revolutionized  the  commercial  and  social  charac- 
ter of  the  civilized  world. 

AVhen  Stephenson  was  struggling  against  prejudice 
and  conservatism,  to  secure  the  assent  of  Parliament 
to  the  first-born  of  the  gigantic  brood  of  railways 
which  now  dominates  the  world,  he  thought  that  pas- 
sentrers  could  be  carried  from  Manchester  to  London 
at  a  speed  of  twenty  miles  an  hour,  and  had  a  deep 
faith  that  freight  could  be  transported  rather  more 
cheaply  in  this  way  than  by  carts  and  wagons.  The 
reality  has  surpassed  his  expectations  more  than  his 
expectations  surpassed  the  conditions  of  transportation 
which  he  was  trying  to  improve.  The  Tory  squires 
were  panic-stricken  at  the  scaring  of  the  game,  the  de- 


The  Problem  of  Railway  Domination.  3 

structioa  of  tlie  coacbing-inns,  and  the  decadence  of  the 
breed  of  horses,  which  might  result  from  the  new 
method  of  travel;  and  thought  it  an  overwhelming 
argument  against  the  scheme,  to  picture  the  disaster 
that  might  ensue  if  a  bull  should  attempt  to  butt  the 
locomotive  off  the  track.  AVhat  would  they  have  said 
if  they  could  have  foreseen  that  the  measure  which 
they  were  fighting  would  produce  a  political  and  com- 
mercial power  that  would  prove  greater  in  wealth  and 
more  absolute  in  influence  than  the  o:reatest  War\vick 
or  Montfort  ever  known  in  the  old  feudal  times ;  that 
would  carry  legislatures  in  its  pocket  and  defy  the  ad- 
ministration of  justice;  that  would  partition  the  terri- 
tory of  a  mighty  nation  among  its  members,  at  one 
place  build  up  a  wealthy  monopoh^,  and  at  another 
condemn  a  thriving  industry  to  utter  decay  and  death? 
What  would  they  have  done  if  they  could  have  seen 
the  arbitrary  and  irresponsible  power  of  the  great  rail- 
way magnates,  the  luxury  and  vast  wealth  which  they 
accumulate,  the  speculative  fevers  and  crises  of  mad- 
dening and  universal  ruin,  the  bribery  and  dishonesty 
which  have  formed  so  important  a  proportion  of  the 
immense  railway  development  of  the  past  twenty-five 
years?  It  is  well  that  conservative  minds  could  not 
conceive  such  a  change,  for  they  would  have  shrunk 
with  horror  from  the  woes  into  which  mankind  was 
plunging  and  the  loss  of  all  the  qualities  which  society 
had  held  dear. 

The  immeasurable  benefits  that  have  been  secured 
to  mankind,  and  especially  the  unparalleled  develop- 
ment of  the  material  resources  of  this  country,  secured 
by  the  rise  of  the  railway  system,  has  been  made  the 
subject  for  reams  of  panegyric.     Unlike  most  pane- 


4  The  Railways  and  the  liepuhlic. 

j^yric,  all  that  has  been  said  of  the  marvellous  work  of 
the  railway  system  and  the  magical  expansion  which 
it  has  wrought  in  the  population  and  wealth  of  the  na- 
tion is  true.  It  has  brought  into  commercial  inter- 
course the  producer  of  cheap  food  in  Texas  and  Dakota, 
and  the  artisan  of  the  Atlantic  states  and  Europe.  It 
has  not  only  made  two  blades  of  grass  grow  where  one 
£fyQw  before,  but  has  increased  the  industrial  produc- 
tion of  the  land  a  hundred-fold.  All  and  more  than 
has  been  written  of  the  magical  creation  of  states,  cities, 
and  agricultural  communities,  the  rise  of  industrial  en- 
terprises, and  the  production  of  what  is  almost  untold 
wealth,  by  the  expansion  of  our  railway  system,  is  but 
a  faint  picture  of  the  reality  whose  proportions  exceed 
the  grasp  of  human  conceptions.  But  there  is  a  reverse 
to  the  picture  which  the  eulogists  do  not  show.  While 
the  enthusiast  sees  only  the  increase  of  wealth  and  the 
growth  of  population  which  the  railroads  have  wrought, 
there  is  a  view  which  is  not  so  pleasant  to  the  obser- 
vation of  thinking  men.  The  other  side  is  presented 
by  the  abuses  and  demoralizing  tendencies  which  have 
accompanied  the  building-up  of  the  immense  railway 
corporations  of  the  country. 

Having  created  our  Frankenstein  and  realized  its 
monstrous  power,  it  is  time  to  inquire  whether  there 
are  any  drawbacks  to  this  immense  gain,  harmful  to 
the  republican  equality  and  personal  independence 
which  are  the  foundation  of  our  national  character  ?  If 
it  is  found  that  the  wealth  and  influence  of  the  im- 
mense corporations  created  for  the  improvement  of 
transportation  focilities  threaten  the  debauchery  and 
cori'uption  of  the  legislative  power;  if  it  appears  that, 


TIiQ  Problem  of  Bailwmj  Domination.  5 

instead  of  simply  affording  better  and  ampler  facilities 
to  all  people  alike,  discriminating  rates  and  secret  re- 
bates have  exalted  certain  localities  or  certain  shippers 
to  prosperity,  while  condemning  their  competitors  to 
loss  or  ruin  ;  or  if  it  is  seen  that,  by  the  issue  of  inflated 
stocks,  the  manipulation  of  contracts,  or  the  use  of  sub- 
sidiary corporations  to  divert  profits  from  the  stock- 
holders to  their  own  pockets,  the  railway  managers 
have  unjustly  enriched  themselves — if  any  or  all  of 
these  things  are  shown  to  be  true,  then  the  question 
resolves  itself  into  two  branches :  The  first  is  whether 
any  gain  of  material  prosperity  can  compensate  a  nation 
for  placing  its  commerce  in  the  hands  of  an  arbitrary 
and  irresponsible  power,  or  make  good  the  loss  of  per- 
sonal independence  and  confidence  in  public  equity 
among  those  whose  business  existence  is  held  in  the 
hollow  of  the  railway  ofiicial's  hand?  The  other  is 
the  question  whether  these  evils  are  necessary  accom- 
paniments of  the  proper  growth  of  the  railway  busi- 
ness ;  and  if  the  practices  of  discriminations,  stock- 
watering,  and  pooling  combinations  are  separable  from 
the  legitimate  construction  and  operation  of  the  rail- 
roads, what  public  measures  will  secure  their  perma- 
nent abolition  and  the  proper  prosperity  and  security 
of  railway  investments  ? 

Of  the  existence  of  actual  abuses  in  the  railway 
system  of  the  country  there  is  little  room  for  dispute. 
The  presence  of  roads  constructed  upon  largely  inflated 
issues  of  bonds,  and  of  at  least  one  immense  corpora- 
tion which  has  been  built  up  by  the  favor  of  railways 
to  the  destruction  of  its  competitors,  is  too  well  known 
to  admit  of  question.  But  it  has  been  the  practice  of 
a  very  large  and  respectable  class  of  writers  to  assert 


6  The  Railways  and  the  Republic. 

that  the  watering  of  stocks,  the  making  of  special  rates, 
and  the  allowance  of  rebates,  are  necessary  incidents 
of  the  transportation  business  of  the  nation,  and  to 
argne  that  the  wonderful  increase  of  prosperity  wrought 
by  the  era  of  railway  extension  should  offset  and  con- 
done all  the  cases  of  injustice  which  have  arisen  in  the 
details  of  the  system.  To  a  certain  extent  this  may  be 
true.  The  practical  influences  for  the  maintenance  of 
special  rates,  and  the  temptations  to  make  fortunes  by 
the  operation  of  building  railways  for  a  nominal  value 
of  twice  what  they  cost,  and  realizing  the  profit  at 
the  expense  of  the  bondholders,  may  be  too  powerful 
for  average  human  nature  to  resist.  The  same  argu- 
ment carried  further  mijiht  susfo-est  a  merciful  con- 
sideration  for  men  who,  incited  by  the  hope  of  fort- 
une, have  secured  advantages  over  competing  firms 
by  special  favors  from  the  railways,  and  have  finally 
destroyed  competition  and  established  a  bold  and  de- 
fiant monopoly.  We  might  even  make  allowance  for 
the  men  who,  having  received  a  gift  of  an  empire 
in  lauds  and  money  for  the  construction  of  a  trans- 
continental railway,  proceed  to  bribe  legislators  and 
buy  up  public  officials  to  obtain  further  grants  for 
their  corporations,  or  to  prevent  adverse  action  as  to 
the  ratification  of  past  donations.  The  pressure  of  mill- 
ions to  be  made  or  lost  is  a  mighty  force,  and  the  man 
who  sees  success  in  that  acquisition  of  immense  wealth 
which  is  the  ambition  of  so  many  of  the  American 
people,  should,  perhaps,  find  some  allowance  for  the 
power  of  the  incentives  by  which  he  is  led  to  for- 
get the  principles  of  strict  equity  or  ignore  the  in- 
terests of  the  public.  But  allowance  for  the  circum- 
stances of  the  transEcressor  cannot  condone  the  trans- 


The  Problem  of  Baihoay  Domination.  7 

gression.  If  the  pressure  of  circumstances  forces  a 
railway  company  to  build  up  a  community  or  enrich 
a  business  enterprise  at  the  expense  or  ruin  of  a  com- 
peting community  or  firm,  there  is  only  the  more  rea- 
son for  seeking  a  greater  force  which  shall  insure  equal 
justice  to  all.  If  the  influences  which  lead  to  inflation, 
stock  manipulation,  and  discriminations  are  too  jDOwer- 
ful  for  individual  resistance,  there  is  so  much  the  more 
need  of  a  stronger  power  to  restrain  those  influences. 
If  they  are  inherent  in  the  present  constitution  of  the 
railway  system,  then  we  must  seek  methods  of  thorough 
reformation  which  shall  retain  the  efficiency  of  the  sys- 
tem while  abolishing  the  injustice  and  public  demoral- 
ization. That  such  reformation  will  be  an  arduous  and 
weighty  task  is  beyond  question;  but  the  claim  that 
it  cannot  be  done  without  destroying  the  railway  busi- 
ness is  much  like  the  position  assumed  by  those  po- 
litical thinkers  of  Russia  and  Germany  who  hold  that 
the  government  of  a  nation  cannot  be  efficient  unless 
absolute  and  arbitrary  power  is  vested  in  the  monarch 
at  its  head. 

Nor  do  the  great  national  benefits  secured  by  rapid 
railway  construction  afford  any  valid  reason  for  spar- 
ing abuses  which  may  have  grown  out  of  it.  No 
element  of  national  growth  can  be  so  perfect  that  it 
is  useless  to  inquire  whether  its  workings  could  not 
have  been  made  more  beneficial.  In  the  case  of  the 
railways  especially,  a  critical  examination  is  justifiable, 
because  their  projectors  and  operators  have  invariably 
embarked  in  these  enterpi'ises  not  so  much  for  the 
public  welfare  as  for  their  own  private  enrichment.  If 
the  country  has  had  hundreds  of  millions  added  to  its 
wealth  by  I'ailway  construction,  the  builders  have  also 


8  The  Eaihcays  and  the  Bepublic. 

secured  tens  of  millions  for  their  individual  fortunes. 
This  fact  in  itself  furnishes  no  indictment  of  railway 
manafxement :  but  it  does  estop  the  argument  that,  be- 
cause of  the  gain  to  the  nation,  public  investigation  of 
unjust  and  inequitable  practices  should  not  be  mad^. 
The  question  is  not  whether  the  railway  system  has 
been  a  public  benefit,  but  whether  it  cannot  be  made  a 
greater  one  ?  While  the  nation  has  gained  in  wealth  and 
population  through  the  general  extension  of  railways, 
it  does  not  follow  that  the  wealth  could  not  have  been 
more  justly  distributed  and  the  population  made  more 
prosperous,  if  railway  management  had  been  univer- 
sally governed  by  the  principles  of  equity.  If  the  gov- 
ernment has  secured  the  settlement  of  the  western 
ten-itories,  the  pacification  of  the  Indians,  and  quick 
transit  to  the  Pacific  coast,  by  giving  the  men  who 
built  the  transcontinental  railways  the  money  to  build 
the  roads  and  an  empire  of  land  in  addition,  it  is  still 
permissible  to  ask  whether  it  will  not  suffice  to  pre- 
sent the  projectors  of  the  next  enterprise  with  the  com- 
pleted railroad,  without  adding  the  millions  of  acres 
of  territory  to  induce  them  to  take  the  gift. 

The  great  ideas  which  shaped  the  formation  of  the 
government,  and  have  made  the  nation  what  it  is,  are, 
first,  the  deriving  of  all  power  which  afiects  the  wel- 
fare and  prosperity  of  the  community  from  tlie  popular 
will ;  next,  the  equality  of  all  classes  before  the  instru- 
mentalities of  government:  the  securing  to  every  citi- 
zen an  equal  opportunity  to  prosecute  all  branches  of 
legitimate  enteiprise,  and  to  achieve  success  or  failure 
solely  in  proportion  to  his  own  ability  or  industry ;  and 
finally,  the  maintenance  of  that  democratic  state  of 
society  in  which  the  crreatest  £rood  is  secured  bv  the 


The  Problem  of  Railway  Domination.  9 

most  general  distribution  of  education  and  property 
among  the  people,  as  opposed  to  the  production  of  a, 
class  of  bigbly  educated  and  wealthy  aristocrats  at  the 
cost  of  ignorance  and  poverty  to  others.  Upon  these 
principles  the  nation  has  not  only  grown  strong  and 
great  in  material  wealth,  but  it  has  wrought  a  far 
greater  work  than  the  creation  of  riches,  in  the  estab- 
lishment of  a  nation  of  intelligent,  self  respecting,  and 
self-governing  freemen.  To  permit  the  rise  of  influences 
which  may  destroy  that  work  is  little  better  than  na- 
tional suicide.  Such  influences  prevail  when  the  equal- 
ity of  all  persons  is  denied  by  the  discriminations  of 
the  corporations  which  the  government  has  created. 
Under  thsm,  the  increase  of  national  wealth  is  not  dis- 
tributed among  all  classes,  according  to  their  industry 
or  prudence,  but  is  concentrated  among  those  who  en- 
joy the  favor  of  the  railway  power;  and  general  inde- 
pendence and  self  respect  are  made  impossible,  while 
the  prosperity  or  extinction  of  business  enterprises  are 
dependent  upon  the  favor  or  enmity  of  the  men  who 
control  the  transportation  routes  of  tlie  land.  It  is  not 
to  be  believed  that  any  gain  of  wealth  can  compensate 
for  the  loss  of  personal  independence  or  the  deprecia- 
tion of  the  national  character  which  the  existence  of 
such  influences  threatens.  No  upright  mind  can  think 
that  all  the  wealth,  luxury,  and  power  of  imperial 
Rome  was  a  fair  exchange  for  the  freedom,  bravery, 
and  patriotism  of  the  poorer  but  far  greater  Roman 
republic. 

A  system  which  contains  the  germ  of  such  dangers 
must  not  be  paltered  with.  The  best  and  liighest  in- 
terests of  the  people  will  not  let  us  look  with  indiffer- 
ence upon  the  growth  of  irresponsible  corporations, 


10  The  Railways  and  the  Rejpvblic. 

which  hold  a  greater  power  over  the  fortunes  and 
prosperity  of  individuals  and  communities  than  we  have 
ever  intrusted  to  our  government.  Even  if  we  admit 
that  the  instances  are  few  in  which  such  a  power 
has  been  used  for  the  enrichment  of  one  person  at 
the  expense  of  the  many,  its  mere  existence  threatens 
the  public  welfare.  No  men  or  set  of  men  can  be 
permitted  to  play  the  part  of  Providence  over  the 
commerce  and  industries  of  the  country.  If  national 
w'ealth  and  growth  are  only  to  be  obtained  at  the 
cost  of  erecting  within  our  borders  the  rule  of  a  group 
of  corporation  magnates,  who  shall  be  raihvay  kings 
in  fiict  as  well  as  in  name,  let  us  rather  choose  na- 
tional poverty  and  national  freedom. 

The  nation  is  not,  however,  restricted  to  such  a 
choice.  The  alternative  is  not  presented  to  the  Amer- 
ican people  whether  they  shall  accept  the  material 
benefits  of  the  railways,  with  the  attendant  evils  of 
arbitrary  power,  or  go  without  the  railways  altogether. 
The  question  is  simply  whether  we  shall  accept  the 
railways  as  they  are,  or  seek  to  retain  them  w^ithout 
their  abuses.  The  ultimate  power  in  this  land  still  rests 
wdth  the  people.  The  government  can  still  exert  its 
regulating  control  over  its  corporate  creations,  and  bring 
them  into  full  harmony  with  the  principles  of  commer- 
cial equality  and  public  justice.  Its  power  to  do  so 
has  been  affirmed  by  the  courts,  declared  by  legislat- 
ures, and  even  tacitly  recognized  by  the  railways  them- 
selves. For  wdiile  the  discussion  of  this  subject  has 
accomplished  little  in  the  way  of  actually  abolishing 
these  evils,  it  has  produced  a  marked  advance  in  the 
attitude  of  railway  managers  and  their  public  advo- 
cates as  to  the  principles  upon  which  they  must  regu- 


The  Problem  of  Railway  Domination.  11 

late  their  policy.  Eight  years  ago  the  right  of  rail- 
ways to  make  siicli  rates  as  they  please  was  affirmed 
by  nearly  every  railway  man  who  deigned  to  take  any 
notice  of  the  complaints  of  the  public.  Now,  the  stereo- 
typed argument  Avhich  seeks  to  justify  discriminations 
starts  out  with  the  acknowledgment  "that  every  com- 
pany is  bound  to  perform,  with  absolute  impartialit}', 
absolutely  identical  services."  In  the  profuse  defences 
of  the  railway  policy  made  in  the  congressional  de- 
bates of  1884-5,  I  have  not  yet  seen  one  speech  m  hich 
did  not  concede  the  princi})le  that  discriminations  be- 
tween shippers  were  reprehensible,  the  only  question 
being  whether  any  effective  steps  should  be  employed 
for  their  abolition.  This  chansre  in  the  attitude  of  the 
railway  advocates  has  been  wrought  by  the  unaided 
force  of  public  opinion.  I  take  it  that  public  opinion 
is  just  as  well  qualified  to  decide  the  question  whether 
these  evils  require  legislative  remedy,  and  to  dictate 
what  those  remedies  shall  be. 

But,  we  were  told,  a  year  or  two  ago,  in  several 
ably  written  magazine  articles,  the  proper  I'emedy  for 
all  the  abuses  which  grow  out  of  the  methods  of  rail- 
way transportation  must  be  the  healing  influence  of 
the  great  pi'inciple  of  competition.  There  is  much 
force  in  this  argument,  as  pointing  out  the  way  to  cure 
the  evils;  but  when  presented  as  an  objection  to  any 
legislation  wliatever,  it  possesses  two  fatal  defects.  It 
first  assumes  that  legislative  regulation  of  the  railways 
will  intei'fere  with  free  competition,  which  is  a  wliolly 
unwarranted  assumption ;  and,  next,  it  completely  ig- 
nores the  vital  fact  that  the  greatest  abuse  which  calls 
for  legislative  interference  is  the  persistent  policy  of 
the  railways  to  suspend  and  obstruct  the  operation  of 


12  The  Railways  and  the  BepuUic. 

competition  by  all  means  wliicli  their  united  power 
can  command.  The  contrast  between  the  immeasura- 
ble benefits  which  competition  will  bring,  and  the  evils 
which  are  produced  by  its  imperfect  and  unobstructed 
workings  in  the  existing  railway  system  is  in  itself  a 
conclusive  reason  for  invokino;  leirislation  to  defend 
this  great  principle  against  the  assaults  of  railway 
combination,  and  to  restore  the  supremacy  of  the  nat- 
ural laws  of  trade  now  trampled  under  foot  by  every 
railway  pool  from  New  York  to  San  Francisco.  To 
leap  to  the  opposite  conclusion  and  to  assert,  because 
competition  is  a  great  and  beneficial  power,  that  leg- 
islation must  permit  the  work  of  abolishing  it  to  go 
on  without  check  or  hinderance,  is  as  astounding  an 
instance  of  false  deduction  as  was  ever  made  in  the 
defense  of  error. 

The  argument  of  all  the  railway  advocates  against 
the  general  proposition  for  regulation  in  the  interest 
of  the  people  is  based  upon  two  assumptions.  The 
first  is  that  there  are  no  serious  infringements  of  pub- 
lic rights  by  the  railway  system  as  it  is  now  con- 
ducted; and  the  other  is  that  the  proposition  to  regu- 
late the  relations  of  the  railways  to  the  public  neces- 
sarily involves  an  attack  upon  the  security  of  capital 
invested  in  railways,  and  the  destruction  of  their  prop- 
erty rights  under  their  charters.  The  first  assump- 
tion has  taken  form  in  the  assertion  that  the  agita- 
tion is  due  to  "unreasoning  ignorance,"  as  one  writer 
pnt  it ;  or,  to  state  it  in  its  more  courteous  form,  that 
the  subject  of  railway  rates  is  so  intricate  that  the  gen- 
eral public  is  not  qualified  to  decide  it.  The  assertion 
of  railway  advocates,  that  the  public  do  not  under- 
stand the  elements  which  determine  the  cost  of  trans- 


The  Problem  of  Railway  Domination.  13 

portatioD,  shows  either  an  utter  misapprehension  or  a 
deliberate  perversion  of  the  ehiims  made  by  the  advo- 
cates of  railway  reform.  If  there  were  any  serious  prop- 
osition to  fix  rigid  railway  tariffs  by  law,  to  and  from 
all  stations  in  the  country,  or  to  enact  a  wholesale  low- 
ering of  charges,  the  matter  \vould  assume  a  very  dif- 
ferent aspect.  But  no  such  legislation  has  ever  taken 
any  definite  form.  What  has  been  ui'ged  in  Congress 
and  the  legislatures,  and  what  is  demanded  by  the  wel- 
fiire  of  the  nation,  is  that  railway  charges  shall  be 
placed  upon  a  l)asis  of  ecpiality  to  all  shippers,  and  that 
the  rates  which  the  policy  of  the  railways  themselves 
shows  to  be  reasonable  shall  be  applied  to  all  depart- 
ments of  their  traffic.  To  enact  the  impartiality  and 
equality  of  railway  rates  does  not  necessitate  the  estab- 
lishment of  iron-bound  tariffs,  from  which  the  railways 
cannot  depart,  and  none  of  the  legislation  framed  for 
that  purpose  has  contained  any  such  mischievous  sched- 
ule. To  demand  that  the  same  method  of  determin- 
ing the  cost  of  transportation  shall  apply  to  all  classes 
alike,  and  that  the  railway  managers  must  not  have  one 
standard  for  such  freights  as  they  wish  to  favor,  and  a 
higher  one  for  those  which  they  desire  to  burden,  is 
not  to  demand  cheaper  rates.  The  agitation  is  not 
for  lower  railway  charges  or  for  legislative  tariffs,  but 
for  the  enforcement  of  the  principle  tliat  all  persons 
have  equal  rights,  and  that  all  the  services  of  the 
railways  shall  be  performed  with  impartiality,  and 
at  charges  based  on  the  same  standard  of  cost.  To 
answer  this  demand  by  pleading  the  occult  nature 
of  the  charges  of  railways,  and  the  general  ignorance 
on  that  point,  is,  upon  its  most  favorable  construc- 
tion, a  i^roof  that  the  ignoi'ance  of  the  vital  issues  in 


14  The  Railways  and  the  Republic. 

this  subject  rests  with  those  ^Yho  advance  that  argu- 
ment. 

It  is  not  placing  too  much  reliance  on  the  popular 
judgment  to  declare  it  capable  of  deciding  whether 
such  discriminations  as  those  hereafter  cited  in  the 
case  of  the  anthracite  pool  and  the  Standard  Oil  Com- 
pany are  consistent  with  public  welfare.  I  believe 
that  public  opinion  is  competent  to  decide  the  ques- 
tion whether  the  governmental  favors  that  have  been 
lavished  on  the  railways  do  not  also  place  them 
under  public  obligations  to  conduct  their  business 
consistently  with  justice  and  equalit}'.  It  does  not 
require  any  great  technical  knowledge  on  the  part  of 
the  common  people  to  see  that  the  payment  of  $10,- 
000,000  rebates  by  the  railways  to  a  single  oil  refin- 
ing corporation  in  sixteen  months  is  a  vital  attack  uj)on 
the  independence,  and  even  the  existence,  of  its  com- 
petitors; and  on  this  point  the  public  judgment  seems 
to  deserve  more  reliance  and  respect  than  the  judg- 
ment of  the  oflScers  of  the  great  trunk  lines.  In  short, 
it  is  not  essential  to  possess  a  technical  knowledge  of 
all  the  details  that  contribute  to  the  making  of  a  spe- 
cial rate,  to  know  \vhether  discriminations  are  consist- 
ent with  justice,  right,  and  the  public  welfare. 

As  to  the  second  point,  if  any  schemes  of  confisca- 
tion are  proposed,  it  will  be  a  public  duty  for  every 
writer  to  expose  them.  But  such  exposure  should 
not  be  weakened  by  claiming  for  the  railways  prop- 
erty rights  which  are  not  granted  by  the  law,  and 
which  have  been  denied  by  the  courts.  Nor  should 
their  advocates  represent  every  plan  for  their  regula- 
tion as  an  attack  upon  the  security  of  their  property. 
Those   who    seek   to    check    the   abuses   of  a  system 


The  Problem  of  Railway  Domination.  15 

ia  their  inception,  by  measures  wbicli  will  maintain 
the  system  in  its  best  form,  are  doing  the  most  to 
preserve  it  in  security ;  while  those  who  try  to  leave 
the  evils  unchecked  are  takino-  the  surest  course  to 
arouse  a  popular  storm  which  may  some  day  sweep 
away  the  rights  of  property  in  the  railways  at  the 
same  time  with  their  abuses.  It  was  the  fashion 
araono;  the  dominant  class  in  France,  durin<r  the  eio-h- 
teenth  century,  to  regard  the  agitators  in  behalf  of 
popular  rights  as  assailants  of  order;  but  the  real 
cause  of  the  terrible  storm,  which  destroyed  both  the 
oppressions  of  government  and  the  government  itself, 
was  in  the  determination  of  the  aristocracy  to  maintain 
their  power  for  oppression.  The  lesson  should  not  be 
lost  sight  of  in  the  discussion  of  the  existing  problem. 
If  the  remedies  are  inadequate,  it  is  well  to  show  their 
inadequacy.  If  they  are  mischievous,  they  should  be 
exposed  and  denounced.  But  the  effort  to  go  so  deeply 
into  the  causes  of  the  evils  as  to  make  it  clear  how 
they  may  be  dug  up  by  the  roots  is  not  to  be  cried 
down  as  an  attack  upon  railway  property.  The  secu- 
rity of  the  railway  system  lies  in  administering  it  Avith 
careful  respect  to  justice  and  the  public  welfare.  Its 
greatest  danger  lies  in  making  its  oppressive  hand  felt 
by  the  peoj^le,  until  the  popular  spirit  is  goaded  into 
revolt.  The  history  of  the  past  ten  years  contains  one 
evidence  that  the  working  classes  can  be  inspired  to 
an  unreasoning  but  fuiious  attack  upon  the  property 
of  a  great  corporation.  The  experience  of  1877  should 
warn  us  that  safety  lies  in  establishing  principles  in 
railway  management  which  shall  protect  the  rights  of 
the  humblest  shipper  against  the  encroacliments  of  the 
most  powerful,  and  uphold  the  obligations  of  the  rail- 


16  The  Railways  and  the  Rejpxiblic. 

ways  to  the  people  as  zealously  as  it  j^rotects  the  prop- 
erty of  the  corporation  against  the  blind  fury  of  a  hun- 
gry and  desperate  mob. 

No  fiiir  view  of  this  subject  will  refuse  to  recognize 
the  vital  fact  that,  to  maintain  the  commercial  benefits 
of  the  railways,  their  ability  to  yield  fair  profits  to  in- 
vestors must  be  preserved.  No  gain  will  be  secured 
by  making  the  function  of  transportation  a  gratuitous 
one.  The  efforts  at  reform  are  not  opposed  to  the  in- 
terests of  legitimate  railway  capital,  as  has  often  been 
asserted  by  the  accredited  representatives  of  railway 
capitalists.  The  history  of  the  past  ten  years,  with 
its  rapidly  alternating  eras  of  railway  expansion  and 
railway  shrinkage,  bringing  at  one  time  inflation  and 
speculation,  and  at  another  depression  and  general 
wreck,  does  not  present  the  prevailing  methods  of 
railway  business  as  affording  perfect  protection  to 
the  interests  of  the  ordinary  investor.  When  we  re- 
flect on  the  panics  that  have  been  produced  by  the 
reckless  and  dishonest  manipulations  of  railway  prop- 
erty, it  does  not  appear  that  the  security  of  capi- 
tal is  at  all  threatened  by  the  inquiry  whether  such 
abuses  cannot  be  prevented.  If  the  ability  of  railway 
managers  to  divert  the  profits  of  the  railroad  to  their 
own  pockets  by  fast  freight  lines,  construction  compa- 
nies, and  other  devices  of  that  nature,  were  utterly  abol- 
ished, the  change  ought  to  be  a  benefit  to  the  capital 
invested  in  the  road  rather  than  an  injury  to  it.  The 
fact  is  that  the  outcry  against  all  railway  regulation,  as 
attacking  the  legitimate  profit  of  railway  investments, 
has  failed  to  draw  the  very  important  distinction  be- 
tween the  illegitimate  profits  of  the  managers  and  the 
legitimate  returns  on  the  actual  capital  invested.     The 


The  Problem  of  Railway  Domination.  17 

needed  remedies  miglit  impair  the  power  of  railway 
presidents  and  directors  to  lay  up  fortunes  of  millions 
out  of  yearly  salaries  of  thousands ;  but  that  a  state  of 
things  which  would  make  the  rates  of  the  roads  steady 
and  equitable,  and  their  business  correspondingly  en- 
larged and  unfluctuating,  would  injure  the  sharehold- 
ers' investment,  is  about  as  credible  as  that  the  sup- 
pression of  lotteries  would  inflict  a  loss  upon  the  de- 
positors in  the  savings  banks. 

A  determined  optimism  appears  in  the  manner  with 
which  railway  advocates  assert  now  that  whatever 
principles  ought  to  prevail  in  the  railway  management 
do  prevail,  and  now  that  whatever  do  prevail  ought 
to.  But  when  the  measures  to  protect  the  public  are 
under  consideration  this  optimism  disappears.  "The 
questions  thus  presented,"  say  the  dissenting  judges  of 
the  Supreme  Court,  in  the  granger  cases,  "  are  of  the 
greatest  importance,  and  their  approval  must  material- 
ly aff'ect  the  value  of  property  invested  in  railroads,  to 
the  amount  of  many  hundreds  of  millions,  and  will 
have  a  great  influence  in  encouraging  or  repelling  fut- 
ure investments  in  such  property."  This  prediction 
has  been  quoted  in  connection  with  the  oft-repeated 
charge  that  the  attempt  to  regulate  railway  abuses  by 
the  granger  acts  of  the  western  states  was  the  cause 
of  the  panic  of  1873.  To  rely  on  this  argument  is 
simply  to  beg  the  question.  A  study  ot  commercial 
history  will  And  the  cause  of  that  revulsion,  not  in  leg- 
islation adverse  to  the  railways,  but  in  the  ability  of 
railway  adventurers  to  construct  railways  ahead  of 
development,  and  on  that  insecure  foundation  to  create 
magnificent  fabrics  of  inflated  stock  valuations.  With 
the  granger  legislation   as  subsequently  modified,  in 


18  The  Railways  and  the  EepuUic. 

force  for  twelve  years  since  that  financial  storm,  tlie 
rage  for  railway  building  has  again  set  in,  and  the 
same  result  of  inflating  the  bubble  to  the  point  of 
bursting  has  been  repeated.  In  the  business  history 
of  the  last  fifteen  years,  the  one  lesson  that  stands  out 
most  clearly  is  that  the  danger  to  capital  in  railway 
investments  is  not  the  interference  of  legislation,  but 
the  manipulation  of  railway  adventurers;  and  it  is  by 
limiting  railway  management  to  the  performance  of 
public  duties  and  to  the  earning  of  honest  dividends 
for  their  shareholders  that  the  greatest  security  will 
be  afi'orded  to  legitimate  investors.  It  is  worth  while 
to  notice  here  that  the  prediction  of  the  judges  of  the 
Supreme  Court  who  dissented  from  the  granger  deci- 
sions was  not  fulfilled  in  the  sense  of  i:)reventing  the 
extension  of  railways.  On  the  conti'ar}^,  the  states 
afi'ected  by  that  decision  have  since  then  been  prom- 
inent examples  of  the  rapid  expansion  of  the  railway 
system.* 

Suppose  that  it  were  true,  as  these  jurists  and  writ- 
ers claim,  that  by  the  assertion  of  the  public  right 
to  regulate  the  railways  the  value  of  their  property 
is  decreased,  are  there  no  other  property  rights  in- 
volved? Do  railway  investments  form  the  only  prop- 
erty in  the  land  which  requires  the  protection  of  the 
law  ?  Are  w^e  to  understand  these  judges  and  their 
endoi'sers  to  mean  that,  because  railway  property  will 

*  lu  Illinois  the  milenge  of  iie^v  railways  during  the  four  prosperous 
years  of  the  era  of  expansion,  from  1879  to  1883,  was  1488;  during  the 
four  years  of  the  corresponding  era,  from  1871  to  1875,  it  was  1205.  In 
Wisconsin  the  growth  in  the  four  expansive  years  after  the  granger  deci- 
sions was  1143,  against  841  in  the  four  years  of  railway  growth  before 
that  decision. 


Tlie  Problem  of  Railway  Domination.  19 

depreciate  if  certain  principles  of  justice  prevail,  there- 
fore justice  is  to  be  set  aside  for  the  benefit  of  railway 
property?  If  the  magnitude  of  interests  involved  is 
to  be  of  weight  in  deciding  such  questions,  let  us  put 
against  "  the  hundreds  of  millions  "  of  railway  property 
on  the  one  side  the  thousands  of  millions  of  private 
property  on  the  other.  Railway  regulation,  accord- 
ins:  to  a  writer  in  the  Princeton  Pevieiv,  is  "confisca- 
tion  of  railway  property,"  but  this  puts  ^vholly  out  of 
the  question  the  idea  of  that  confiscation  of  private 
property  which  is  rendered  possible  by  leaving  un- 
checked the  power  of  the  railways  over  commerce 
and  manufactures  through  the  manipulation  of  freight 
rates.  Of  the  two  parties  in  interest  the  shippers  rep- 
resent far  greater  property  interests  than  the  carriers, 
although  the  latter,  by  their  organization,  are  more 
powerful.  I  have  yet  to  hear  of  a  single  case  where 
restrictive  railway  legislation  has  seriously  damaged 
the  honest  valuation  of  any  railway.  I  have  yet  to 
learn  of  any  seriously  proposed  scheme  of  regulation 
that  has  proposed  to  cut  down  railway  profits  below 
a  fair  dividend  on  the  capital  actually  invested.  But 
the  entire  nation  knows  of  one  notorious  case  in  which 
the  discriminating  policy  of  the  leading  railways  of 
the  country  has  resulted  in  the  wholesale  confiscation 
of  private  property  for  the  benefit  of  a  favored  corpoi-a- 
tion ;  while  less  famous  cases  will  be  alluded  to  in  the 
subsequent  images.  In  view  of  the  fact  that  the  only 
confiscations  which  have  taken  place  have  been  those 
in  which  the  railway  managers  have  been  the  oftend- 
ers  rather  than  the  victims,  might  not  this  liorror  of 
confiscation  and  disturbance  of  property  rights  be  just- 
ly felt  in  behalf  of  the  private  property  of  the  land. 


20  The  JRailways  and  the  Itejpublic. 

whicli   is   to-day   largely   at   the   mercy   of   railway 
rates  ? 

In  order  to  give  mncli  weight  to  the  arguments 
by  W'hicb  they  oppose  governmental  regulation,  the 
railways  should  make  their  practices  accord  with  the 
principles  which  they  profess.  When  the  declaration 
that  the  elements  of  cost  of  transportation  are  beyond 
the  public  comprehension  is  coupled  with  the  wide- 
spread practice  of  disregarding  the  cost  of  service  on 
important  classes  of  their  traffic,  the  natural  conclusion 
is  that  the  railways  have  one  class  of  principles  for 
public  use  and  another  for  the  conduct  of  their  private 
affairs.  If  it  appears  upon  examination  that  the  argu- 
ment for  leaving  railway  abuses  to  the  corrective  influ- 
ence of  competition,  without  any  legislation  Avhatever, 
has  been  urged  concurrently  with  the  general  effort 
of  railway  management,  all  over  the  land,  to  organize 
and  maintain  combinations  for  the  express  purpose  of 
preventing  competition,  what  other  inference  can  there 
be  than  that  such  logic  is  used  to  perplex  and  obscure 
the  general  judgment?  But  these  striking  contrasts  be- 
tween railway  pleas  and  railway  practices  are  tlirown 
into  the  shade  by  the  last  formulation  of  railway  opin- 
ion on  the  views  of  the  governmental  duty  to  the  cor- 
porations. It  has  been  argued  for  years  that  the  sub- 
ject is  so  delicate  and  vast  that  it  must  not  be  touched 
by  legislation  in  the  public  interest.  To  protect  the 
rights  of  the  ordinary  shipper  against  the  fiivorite  of 
the  railway  would  so  hamper  the  operations  of  trade, 
it  has  been  repeated  times  without  number,  as  to  take 
away  the  independence  of  the  railways  and  destroy 
the  freedom  of  competition.  Yet,  after  years  of  argu- 
ment that  government  has  no  constitutional  power  to 


The  Problem  of  Railway  Domination.  21 

interfere  with  the  railways,  and  of  demonstration  that 
all  such  interference  must  be  ill-advised  and  injurious, 
the  railway  logic  comes  to  the  surprising  climax  of 
appealing  to  legislation  for  the  aid  of  the  law  in  up- 
holding their  efforts  to  j^revent  competition.  After 
maintaining  that  the  state  must  not  protect  the  public 
against  the  inequitable  practices  of  railways,  the  rail- 
way argument  resolves  itself  into  an  appeal  to  the 
state  to  protect  them  against  themselves.  Such  a  the- 
ory of  legislation  implies  that  the  public  rights  are 
of  no  importance  beside  the  wishes  of  the  railway 
managers.  The  practices  of  the  railways  are  alleged  to 
be  too  just  and  equitable  to  require  any  defence;  but 
they  must  be  restrained  to  save  them  from  their  own 
recklessness  and  disregard  of  business  principles.  The 
law  must  not,  by  any  effective  measures,  uphold  the 
right  of  all  persons  to  equal  privileges  and  impartial 
charges ;  it  cannot  forbid  the  creation  of  vast  monop- 
olies; it  cannot  check  the  formation  of  combinations 
to  control  the  movements  of  the  great  staples,  or  pro- 
tect the  freedom  of  competition  in  all  the  branches  of 
transportation.  On  the  contrary,  its  aim  must  be  to 
uphold  the  combinations  by  which  competition  is  ol> 
structed.  To  such  an  astounding  proposition  the  an- 
swer of  the  public  should  be  plain.  The  first  business 
of  the  state  is  to  guard  the  people  against  the  abuses 
of  its  corporate  creatures.  If  the  principle  of  enliglit- 
ened  selfishness  is  not  sufiicient  to  keep  the  railways 
from  destroying  themselves,  it  surely  cannot  protect 
the  private  interests  that  are  subject  to  their  power. 
To  deny  the  right  of  restraining  that  selfisliness,  when 
it  is  confessed  that  the  railwavs  are  so  little  enlio-ht- 
ened  in  its  exercise  as  to  need  the  help  of  the  law  to 


22  The  Railways  and  the  Bepublic. 

keep  them  from  ruining  themselves,  is  the  fantasy  of 
corporate  blindness. 

The  inquiry,  what  remedy  will  cure  these  evils?  ne- 
cessitates a  careful  review  of  the  entire  subject.  It  is 
necessary,  first,  so  to  study  their  nature  and  causes  as  to 
learn  whether  they  are  inherent  in  the  transportation 
business,  or  whether  they  have  grown  out  of  methods 
that  are  susceptible  of  reform  without  utterly  revolu- 
tionizing the  system.  The  next  step  will  be  to  inquire 
into  the  power  of  legislation  to  cure  them.  It  is  an 
important  question  whether  the  legislatures  which 
have  created  such  immense  commercial  and  social  pow- 
ers as  the  railways  have  placed  beyond  their  reach 
the  right  to  restrain  and  correct  the  abuses  of  the 
power  so  called  into  existence.  It  is  a  grave  matter 
whether  we  are  to  be  confronted  with  the  alternative 
of  either  submitting  to  the  arbitrary  rule  of  corporate 
bodies,  like  that  of  the  Central  Pacific  in  California 
and  Nevada,  or  of  overturning  that  tyranny  by  sub- 
verting with  it  the  system  of  law  on  which  it  is 
founded.  But  when  we  find,  as  we  shall,  that  the  fun- 
damental principles  of  law  on  which  the  existence  of 
these  corporations  rests,  secure  to  government  the  right 
to  regulate  its  creatures,  then  the  question  comes  next, 
what  remedy  will  at  once  cure  the  evils,  preserve  the 
usefulness  of  the  railways,  and  protect  the  legitimate 
and  honest  investments  of  capital  in  the  railway  cor- 
porations ?  If  the  plan  of  regulation  contains  the  ele- 
ment of  confiscation  or  destruction  of  the  railway  prop- 
erty, it  is  not  for  the  public  benefit.  If  it  is  simply 
restrictive  of  the  dangerous  powers  of  the  railway  cor- 
porations over  commerce,  but  leaves  those  powers  still 
existing,  with  only  a  frail  legislative  barrier  between 


The  Problem  of  Hallway  Domination.  23 

them  and  their  subjects,  it  is  inadequate.  What  the 
matter  demands  is  the  application  of  remedies  which 
will  wholly  abolish  the  causes  of  discriminations,  and, 
at  the  same  time,  retain  for  these  great  instrumentali- 
ties of  trade  their  character  as  useful  highways  of  com- 
merce and  their  availability  as  sound  and  remunerative 
investments. 

This  work  will  attempt  to  show  that  the  power 
now  left  in  the  hands  of  the  railway  managers,  to 
change  their  rates  so  as  to  discriminate  in  favor  of  one 
set  of  shippers  and  against  another,  or  to  manipulate 
the  business  of  their  corporations  so  as  to  affect  the 
stock  market,  is  a  dangerous  and  intolerable  threat  to 
commerce,  to  investors,  and  to  the  whole  social  fabric ; 
that  the  exercise  of  this  power  is  not  only  contrary  to 
the  spirit  of  our  laws,  but  that  it  is  wholly  opposed 
to  the  fundamental  principle  of  the  laws  by  which 
these  corporations  were  created  ;  that  in  the  power  of 
the  government  to  establish  and  maintain  public  high- 
ways lies  a  thorough  remedy  for  the  existing  evils; 
and  that  when  the  obligations  of  the  railway  are  en- 
forced by  making  it  a  public  highway  in  fact,  in- 
stead of  as  a  legal  fiction,  then  we  may  look  to  see 
the  great  principle  of  competition  work  so  freely  that 
wild  fluctuations  of  freight  rates,  the  injustice  of  spe- 
cial rates,  the  restrictive  influence  of- pools,  or  the  cre- 
ation of  monopolies  and  the  crushing  out  of  inde- 
pendent industries  by  discriminations,  will  become  as 
impossible  on  the  railways  as  it  is  upon  our  lakes, 
rivers,  and  canals.  The  principles  which  should  gov- 
ern the  conduct  of  all  great  enterprises,  the  mainte- 
nance of  public  rights,  the  freedom  of  commerce,  the 
subordination  of  corporations  to  the  spirit  and  letter 


2i  The  Railways  and  the  Hepublic. 

of  the  law,  are  eternal.  The  preservation  of  the  free- 
dom of  competition,  the  integrity  of  the  commercial  and 
popular  character,  and  the  prosperity  of  the  masses, 
the  restraint  of  arbitrary  po^ver  and  of  corrupt  or  mer- 
cenary influences,  will  always  be  among  the  highest 
aims  of  human  society.  All  these  issues  are  involved 
in  the  problem  of  railway  regulation,  as  it  presents  it- 
self to-day,  and  its  earnest  consideration  should  not  be 
neglected  while  any  power  for  evil  is  left  in  the  unre- 
strained and  gigantic  corporations. 


CHAPTER  11. 

TEN    YEARS    OF    DISCREMtNATION. 

The  power  of  railway  managers  to  foster  or  to 
injure  particular  traders,  brauches  of  business,  or  sec- 
tions  of  country,  by  discriminations  in  their  rates  of 
freight,  is  a  momentous  element  of  "  the  raihvay  prob- 
lem." The  extent  of  this  power,  in  any  case,  depends 
on  the  proportion  which  the  cost  of  transportation 
bears  to  the  total  value  of  the  article  transported. 
Where  the  charores  for  frei^-ht,  in  the  a£::2:reirate,  amount 
to  less  than  the  average  profit  of  the  dealer,  discrimi- 
nation in  rates  by  public  carriers  can  only  affect  the 
distribution  of  such  profits.  But  where  the  discrimi- 
nation in  freight  charges  exceeds  the  profits,  it  carries 
with  it  the  extinction  of  profits  for  one,  with  probable 
ruin  if  kept  up  long  enough,  and,  on  the  other  hand, 
certain  fortune  for  the  other.  The  same  may  be  said 
of  two  rival  cities  or  sections  competing  in  the  produc- 
tion of  any  great  staple.  Other  things  being  equal,  the 
power  of  the  railroads  can,  if  it  is  persistently  exerted, 
condemn  the  industry  of  one  city  to  decay  and  stimu- 
late the  other  to  activity.  Many  interests  are,  by  the 
character  of  their  business,  protected  from  any  direct 
action  of  the  power  to  discriminate  on  freight  charges. 
The  jeweller,  tlie  bookseller,  the  dealer  in  costly  fabrics, 
the  banker,  or  the  retail  dealer  generally,  and  a  vast 
list  of  similar  interests,  pay  freights  which  are  so  small 


26  The  Railways  and  the  Rejpvhlic. 

in  proportion  to  their  net  receipts,  that  no  discrimina- 
tion in  rates  can  materially  affect  them.  But  there 
are  few  "which  can  escape  the  indirect  effect  of  an  un- 
scrupulous exertion  of  the  power  to  discriminate  in 
the  transportation  of  the  great  staples  which  make  the 
fundamental  factors  of  any  trade.  IS^early  all  of  these 
leading  interests  are  at  the  mercy  of  the  power  to 
make  unequal  rates,  which  at  present  is  left,  with  com- 
paratively slight  check,  in  the  hands  of  the  railway  of- 
ficials. In  manufacturing  iron,  coal,  and  steel,  the  ele- 
ment of  freight  charges  in  the  cost  of  product  is  several 
times  the  average  profit.  In  the  shipping  of  the  great 
grain  staples  a  certain  profit  of  two  or  three  cents  a 
bushel  will  assure  fortune  to  any  enterprising  man,  but 
rates  of  freight  from  Chicago  to  New  York,  in  1884, 
varied  more  than  ten  cents  per  bushel  in  sixty  days. 
Where  the  higher  cost  of  merchandise  represents  a 
greater  expenditure  of  labor,  as  in  the  manufiicture 
of  machines,  tools,  or  glassware,  and  the  wholesale 
trade  in  groceries  and  dry-goods,  the  power  of  the 
railways  is  less  absolute,  as  the  proportion  of  freight 
charges  to  the  profits  is  less  important.  But  even 
these  interests  may  be  vitally  affected  by  persistent 
discrimination.  It  cuts  down  the  profits  of  one  com- 
petitor and  enhances  those  of  another;  and  thus  acts 
as  a  perpetual  disturbing  force  in  trade,  against  which 
sagacity,  energy,  and  integrity  contend  in  vain. 

While  the  deliberate  and  unscrupulous  use  of  the 
power  of  railway  ofiicials  for  selfish  purposes  is  an 
evil  of  which  the  system  is  capable,  it  is  not,  of  course, 
believed  to  be  a  general  practice.  It  cannot  be  alleged 
with  any  degree  of  fairness  that  the  majority  of  the 
railways  voluntarily  enter  a  policy  of  discrimination, 


Ten   Years  of  Discrimination.  27 

or  that  all  of  the  discriminations  'wliicli  have  existed 
were  prompted  by  the  intention  of  the  railway  man- 
ager to  favor  his  own  business  connections  or  any  one 
else  at  the  expense  of  the  general  shipper.  But  dis- 
criminations which  arise  under  the  ordinary  ^vorkings 
of  the  railway  system,  and  without  intentional  favor- 
itism, may  effect  ruinous  injustice  as  certainly  as  if  they 
had  been  planned  for  the  purpose.  When  a  railway 
has  a  thousand  cars  ready  to  be  loaded  at  Chicago  or 
St.  Louis,  and  a  rival  offers  to  take  the  grain  to  the 
seaboard  for  half  the  usual  rate,  the  pressure  upon  the 
first  road  to  make  an  equal  reduction  is  j^robably  too 
powerful  for  resistance.  The  cut  will  make  a  lower  rate 
to  New  York  and  Philadelphia  than  to  Pittsburgh  at 
half  the  distance,  and  will  foi'ce  the  Pittsburgh  working- 
man  to  pay  more  for  his  bread  than  his  competitor  ou 
the  seaboard ;  but  it  is  forced  on  the  railway  manager 
by  controlling  circumstances.  So  also  in  dull  times, 
when  a  railway  manager  is  in  doubt  about  earning 
enough  to  pay  the  interest-charges  and  dividends  upon 
the  bonds  and  stock  of  his  company,  if  a  great  shipper 
comes  to  him  and  says,  "  I  will  guarantee  your  road 
enough  freight  to  make  the  profits  secure,  if  you,  on 
the  other  hand,  will  agree  to  make  a  prohibitive  rate 
against  all  my  rivals  so^that  they  shall  be  shut  out  of 
tlie  market,"  the  temptation  to  the  railway  manager 
to  exert  this  power,  if  he  has  it,  is  greater  tlian  any 
human  will,  trained  to  the  supreme  business  purpose 
of  money-making,  is  likely  to  withstand.  Yet  from 
exactly  such  involuntary  beginnings  the  most  burden- 
some and  iniquitous  discriminations  have  grown. 
Some  of  these,  begun  under  overwhelming  pressure, 
have  grown  to  a  steady  and  tyrannical  exertion  of  the 


28  The  Railways  and  the  EepvMic. 

discriminating  power,  and  some  Lave  been  kept  up 
merely  because  they  are  still  a  necessity  from  the  pres- 
ent constitution  of  the  railway  business.  In  either 
case  the  effect  is  the  same,  an  arbitrary  power  presses 
with  injustice  and  inequality  upon  the  commercial 
system  of  the  country. 

Even  where  no  such  discriminations  now  exist,  the 
fact  that  they  have  at  times  existed,  and  that  the 
power  to  renew  them  remains  unrestrained,  demands 
either  a  restraint  upon  them  or  the  elimination  of  their 
causes.  It  is  therefore  important,  while  reviewing  the 
extent  and  character  of  the  discriminations  that  have 
existed,  to  determine  how  far  they  are  due  simply  to 
the  arbitrary  will  of  the  men  who  fixed  the  rates,  and 
how  far  they  are  produced  by  external  and  perhaps 
irresistible  influences.  Before  commencing  this  work  of 
examining  the  extent  and  character  of  discriminations, 
it  is  necessary  to  say  that  such  an  examination  cannot 
be  exhaustive.  Vast  numbers  of  the  minor  and  petty 
inequalities  in  railway  rates  have  never  been  brought 
to  light.  Even  of  those  that  have  been  made  public, 
a  complete  list  w^ould  exceed  the  limits  of  this  work. 
The  evidence  with  regard  to  the  discriminations  in  a 
single  state,  furnished  by  the  legislative  investigation 
in  New  York,  occupies  nearly  5000  pages.  All  that 
can  be  done  in  this  work  is  to  review  the  leading  and 
most  important  instances  of  discrimination  under  their 
general  classification  of — (1)  discrimination  between 
different  classes  of  freight ;  (2)  discrimination  between 
di0*erent  localities;  (3)  discrimination  between  indi- 
vidual and  competing  shippers  in  the  same  branches 
of  trade. 

The  discrimination  in  the  classification  of  freights  is 


Ten  Years  of  Discrimination.  29 

probably  the  most  universal,  and  at  tbe  same  time 
the  least  injurious,  of  all  the  discriminations  practised 
by  the  railways.  There  is  hardly  a  railway  in  the 
United  States  that  does  not  charge  more  for  the  same 
service  and  risk  on  one  class  of  goods  than  another. 
Most  of  them  spring,  more  or  less  directly,  from  the 
rule  which  obtains  in  the  vast  majority  of  freight  tar- 
iffs, of  "  charging  what  the  freight  will  bear,"  or,  in 
other  words,  of  decreeing  that  if  the  profits  of  one  line 
of  trade  are  greater  in  proportion  to  the  amount  of  its 
freight  charges  than  those  of  another,  the  more  profita- 
ble class  shall  be  assessed  a  heavier  rate  and  be  com- 
pelled to  pay  more  for  the  same  service  to  the  rail- 
ways. The  frankest  avowal  of  the  lack  of  rule  which 
governs  this  subject  w^as  made  by  Mr.  Albert  Fink, 
before  the  Railway  Commission  of  New  York.  "  Clas- 
sification," said  this  high  authority,  "is  always  arbi- 
trary," and,  for  this  reason,  he  and  the  railway  powers 
which  he  represents  declined  to  amend  the  tariff  by 
which  they  charged  one  wholesale  trade  twice  as 
much  for  the  same  service  as  they  charged  another. 
The  example  is  one  of  the  most  recent,  and  having  es- 
pecial prominence  by  reason  of  the  interests  involved, 
is  appropriate  as  an  illustration  of  this  class  of  dis- 
crimination. The  respective  classifications  of  domestic 
dry-goods  and  groceries  imposed,  in  1883,  a  rate  of  75 
cents  per  hundred  pounds  on  domestic  dry-goods  from 
New  York  to  Chicago,  while  the  rate  on  coffee  or 
sugar  by  the  car-lo<id  was  35  cents  per  hundred 
pounds.  The  representatives  of  the  dry-goods  inter- 
est uro-ed  that  it  cost  no  more  to  haul  a  car-load  of 
cotton  fabrics  from  New  York  to  Chicacjo  than  it  did 
a  car-load  of  coffee;  that  dry -goods  were  cleaner, 


30  The  Railways  and  the  JRepublic. 

more  easily  handled,  and  less  liable  to  damage  than 
sugar  or  coffee ;  and,  finally,  that  the  profit  on  domestic 
dry- goods  was  notably  smaller  than  on  almost  any 
other  class  of  wholesale  trade,  and  furnished  no  justi- 
fication for  the  policy  of  making  it  bear  twice  as  large 
a  proportion  of  the  railway  charges  as  other  lines  of 
trade.  A  hint  as  to  the  source  of  this  difference 
was  conveyed  by  the  statement  that  it  arose  from  a 
classification  established  during  the  war,  when  domes- 
tic sheetings  were  worth  $400  or  $500  a  bale,  and 
was  continued  when  their  value  was  reduced  to  $50 
a  bale.  To  these  arguments  the  reply  of  the  railway 
officials  was  that  the  railways  were  already  carrying 
goods  as  cheaply  as  they  could,  with  due  regard  to  re- 
turns on  their  capital.  This  might  have  been  a  fair 
argument  in  favor  of  retaining  the  average  of  their 
rates;  but  it  utterly  avoided  the  merits  of  the  ques- 
tion involved  in  maintaining  a  discrimination  in  classi- 
fication which  imposes  a  burden  of  freight  charges  on 
one  class  of  merchandise  more  than  twice  as  great  as 
on  another.  Although  the  New  York  State  Board  of 
Railway  Commissioners  decided  that  the  discrimina- 
tion was  indefensible,  and  recommended  a  change,  the 
railways  refused  to  comply  with  the  recommendation, 
claiming  that  the  matter  was  beyond  the  power  of  the 
railway  commissioners  because  it  pei'tained  to  inter- 
state commerce.  And  the  power  of  the  railways  over 
the  legislature  of  that  state  is  so  great  that  the  ag- 
grieved merchants  had  no  encouragement  to  ask  the 
legislature  to  enforce  upon  its  own  corporate  creatures 
the  recommendations  of  the  tribunal  it  had  established 
to  remedy  such  evils. 

A   vital  discrimination  in   rates  was  made  several 


Ten  Years  of  Discrimination.  31 

years  ago,  between  materials  for  the  manufacture  of 
iron  in  Pittsburgh  and  grain  from  the  Western  cities. 
The  comparison  noted  below  is  based  on  the  figures 
for  that  period,  and  the  details  may  have  changed  some- 
what since  then.  But  the  discrimination  in  the  open 
rates  still  exists,  and  the  illustration  of  its  cliaracter  in 
1876  to  1878  is  pertinent  to  our  purpose.  The  freights 
mainly  carried  for  a  manufacturing  cit}^  like  Pittsburgh 
are  the  cheapest  that  a  railway  can  transport.  Pig 
iron,  ore,  and  coal  are  loaded  and  unloaded  by  the 
shippers  and  receivers,  are  transported  in  flat-cars,  and 
require  no  protection  from  the  weather  while  in  transit 
or  at  the  end  of  the  route.  Yet  the  rate  per  ton  per 
mile  upon  these  freights,  \vhich  furnish  the  foundation 
of  the  business  of  Pittsburgh,  has  ranged  from  two  to 
five  times  as  much  as  the  rate  on  grain  and  bread- 
stuffs  from  Chicago  to  New  Yorh.*  This  discrimina- 
tion was  supported  by  the  usual  plea  of  the  greater 
desirability  of  the  grain  traffic,  in  its  affording  the 
longer  haul  and  the  larger  volume.  But  the  principal 
factor  which  makes  the  longer  haul  preferable  was 
removed  from  this  case  by  the  fact  that  the  terminal 
expenses,  whose  proportion  to  the  charges  is  generally 
less  in  that  case,  were  borne  by  the  shippers  on  both 


*  The  average  charge  on  the  pig  iron  shipped  to  Pittsburgh  in  1877 
made  tlie  rate  per  ton-mile  2|  cents;  and  on  ore  \^  cents.  Tlie  open 
rates  liave  notclianged  since  then;  and  if  there  has  been  any  correction 
of  this  discrimination,  it  has  been  done  by  the  resort  to  another  discrimi- 
nating process  in  the  shape  of  special  rates  or  rebates.  In  contrast  with 
this  the  rate  on  grain  from  Chicago  to  New  York,  Avhen  sustained  by  the 
pool  at  30  cents  per  hundred,  represents  a  rate  per  ton-mile  of  f  of  a  cent ; 
and  when  reduced,  as  it  was  in  tlie  present  year,  to  10  or  15  cents, 
shows  a  rate  per  ton-mile  of  ^  or  }  of  a  cent.  In  1877  the  average  pool- 
line  rate  was  /ij^j  of  a  cent  per  ton-mile. 


32  The  Railways  and  the  Republic. 

classes  of  freight.  As  to  the  volume  of  business  repre- 
sented in  the  grain  traffic,  there  is  no  such  difference  as 
justifies  the  difference  in  charges.  Supposing  the  cost 
of  canning  a  given  class  of  freight  to  be  ^  a  cent  per 
ton-mile,  a  contract  of  100,000  ton-miles  at  f  of  a  cent 
will  yield  $250  net,  while  one  of  1,000,000  ton-miles 
at  -jQ  of  a  cent  will  give  a  net  profit  of  $1000.  But 
this  will  not  justify  making  the  smaller  haul  pay  three 
or  four  times  as  much  as  the  larger.  Such  a  charge 
indicates,  either  that  the  rate  charged  on  the  short  haul 
yields  a  profit  two  to  three  times  the  cost  of  hauling, 
or  else  that  the  long  haul  is  done  at  a  loss  for  which 
the  shippers  on  the  short  haul  are  assessed.*  In  the 
case  in  question  the  practice  simply  afforded  a  discrimi- 
nation between  two  different  localities.  The  stress  of 
the  hard  times  in  1877,  as  in  1884,  w^as  laid  on  the  iron 
industry  of  Pittsburgh,  while  the  grain  shippers  of  the 
West  escaped  some  of  the  burdens. 

The  difference  which  should  be  made  on  account  of 
the  relatively  low  cost  of  transporting  the  freights  is 
illustrated  by  the  charge  on  grain.  The  average  cost 
of  transporting  all  classes  of  freight  on  the  Pennsyl- 
vania Railroad,  in  1877,  Avas  -{^-Q  of  a  cent  per  ton-mile, 
while  the  average  charge  was  -j^  of  a  cent.  Grain, 
which  is  hardly  so  much  below  the  average  in  the  first 
cost  of  transportation  as  iron  ore  and  pig  iron  are  below 
grain,  is  always  deemed  profitable  by  the  pool  lines  at 


*  In  this  case  there  was  no  such  difference  in  the  amount  of  business 
represented.  The  pig-iron  and  ore  business  of  the  railways  to  Pittsburgh 
amounted,  in  1877,  to  37,000,000  ton-miles.  This  is  equal  to  the  trans- 
portation of  3,500,000  bushels  of  grain  from  Chicago  to  the  seaboard. 
After  reaching  millions  of  transportation  units  the  reduction  in  average 
cost  for  additional  millions  is  very  slight. 


Ten  Years  of  Discrimination.  33 

iVo  <^f  ^  cent,  or  30  cents  per  hundred  to  New  York. 
If  the  Pittsburgh  classes  had  been  placed  on  the  same 
basis  as  grain  in  1877,  leaving  their  greater  cheapness 
to  compensate  for  the  shorter  haul,  the  saving  to  Pitts- 
burgh would  in  that  year  have  relieved  her  mills  from 
much  of  the  loss  and  shrinkage  which  they  suffered  from 
1874:  to  1878.  The  effect  of  this  discrimination,  as  be- 
tween two  different  communities,  may  be  noticed  more 
at  length  when  we  come  to  consider  discriminations 
between  localities.  Its  present  application  is  sufficient 
when  we  perceive  how  little  respect  is  paid,  in  fixing 
freight  charges,  to  the  cost  of  service  and  a  due  propor- 
tion of  the  charges  for  interest  and  dividends.  If  the 
railways  calculated  their  rates  upon  the  cost  of  service, 
it  hardly  seems  possible  that  they  would  distribute 
their  charges  so  unequally.  But  the  fact  is  that  the}^ 
have  been  able  to  maintain  their  charges  on  the  iron 
freights,  while  influences  beyond  their  control,  in  the 
shape  of  water  competition  and  cutting  between  the 
railways  themselves,  have  established  low  rates  on 
grain;  so  that  the  iron  industries  of  Pittsburgh  are 
forced  by  high  rates  to  compensate  the  railways  for 
giving  low  rates  to  the  grain  shippers  of  Chicago. 

One  of  the  most  strikino;  instances  of  discrimination 
between  classes  of  freight  is  that  brought  up  last  year 
by  the  discussion  and  adjudication  of  the  respective 
rates  on  live-stock  and  dressed  beef  The  decision  was 
designed,  it  was  said,  to  prevent  unjust  discriminations; 
Ijut  a  material  and  grave  discrimination  was  embodied 
in  the  decision  itself  by  the  Trunk  Line  pool.  The 
rule  adopted  was,  so  to  determine  the  i-ailroad  charges 
that  the  cost  of  transporting  beef  shall  be  the  same 
whether  it  comes  to  the  Eastern  market  as  live-stock, 

3 


34  The  Railways  and  the  Republic. 

to  be  slaughtered  there,  or  as  dressed  beef  which  has 
been  slaughtered  in  the  West.  In  other  words,  the 
railway  legislature  of  the  country  enacts  that  the  man 
who  ships  only  the  meat  obtained  by  slaughtering  cat- 
tle in  Colorado  shall  have  no  advantao;e  for  the  smaller 
weight  shipped  over  the  man  wdio  ships  the  same  meat 
in  the  live  form,  with  the  useless  weight  of  the  hides, 
hoofs,  and  offal.  In  order  to  secure  this  result,  the 
commissioners  recommended  that  the  rate  on  dressed 
beef  shall  be  made  75  per  cent,  more  than  the  rate  on 
cattle,  or  70  cents  per  hundred  pounds  when  the  rate 
on  live  cattle  is  40  cents.  This  remarkable  rule  was 
extolled  as  "the  only  just  principle,"  because  "the 
competition  between  the  t^vo  classes  of  traffic  is  con- 
fined simply  to  the  parties  who  deal  in  them,  the  rail- 
ways remaining  neutral,  and  charging  all  parties  alike 
for  the  same  service  rendered."  The  absurd  assertion 
that  the  railways  remain  neutral,  when  they  take 
away  from  one  class  of  traffic  the  advantage  of  its 
device  for  lessening  the  cost  of  transportation,  and 
that  they  charge  all  parties  alike  for  the  same  service 
rendered,  when  they  charge  one  class  75  per  cent, 
more  than  the  other  for  transporting  one  hundred 
pounds  of  freight,  could  only  be  made  in  practical 
support  of  a  public  wrong.  The  very  essence  of  the 
question  lies  in  the  fact  that  the  shippers  of  dressed 
beef  have  adopted  methods  which  do  away  with  the 
cost  of  transporting  the  useless  parts  of  the  animal  to 
the  markets  of  the  East.  How  great  an  economy  this 
effects  is  shown  hv  the  fisfures  of  the  Trunk  Line  com- 
raissioner  himself.  If  it  requires  a  charge  larger  by 
68-|  per  cent,  (allowing  for  the  difference  in  incidental 
expenses)  to  equalize  the  cost  of  transportation,  the 


Ten  Years  of  Discrimination.  35 

saving  by  the  shipment  of  dressed  beef  is  34|  per  cent, 
over  the  shipment  of  live-stock.  This  saving  means 
cheaper  meat  to  the  consumers  of  the  East,  and  as 
increased  consumption  always  follows  upon  reduced 
cost,  it  also  means  increased  production  of  this  class  of 
food  in  the  West.  Against  the  general  adoption  of  this 
improvement  the  Trunk  Line  commissioner  takes  his 
stand  on  the  principle  that  the  neutrality  of  the  rail- 
roads requires  them  to  destroy  the  profit  of  new  de- 
vices for  the  benefit  of  the  public  and  consumers.  Xo 
more  crushing  illustration  need  be  given  of  the  utter 
emptiness  of  the  claim  that  "the  intelligent  railway 
managers"  determine  their  charges  by  the  cost  of  mov^- 
ins:  freig:ht. 

The  remarkable  suggestion  in  defence  of  this  in- 
equality, that  railways  should  assume  the  functions  of 
a  national  Board  of  Health,  and  discriminate  against 
dressed  beef  on  the  ground  that  it  may  be  unhealthy, 
needs  no  comment.  Another,  which  commands  more 
respect  considered  by  itself,  is  that  the  cost  to  the 
railway  of  transporting  dressed  beef  is  greater  than  of 
transporting  live  cattle.  But  the  exact  weight  of  this 
plea  was  shown  by  Mr.  Fink's  own  figures,  which  jus- 
tify an  additional  charge  on  dressed  beef  of  only  6-1- 
cents  per  hundred  pounds."     The  inadequacy  of  these 

*  The  additional  cost  of  refrigerator  cars — when  they  are  owned  by 
the  railways — and  tlie  necessity  of  renewing  the  ice  in  transit,  undoubt- 
edly adds  to  the  standing  items  of  cost  in  hauling  dressed  beef,  as  the 
necessity  of  unloading,  feeding,  and  watering  live-stock  does  in  the  live- 
stock tralRc.  We  have  Mr.  Fink's  authority  for  the  statement  that  these 
incidental  expenses  are  larger  in  the  dressed-beef  traffic  than  in  the  live- 
stock traffic;  but  we  also  have  his  authority  for  figures  whicli  show  that 
this  difference  is  utterly  inadequate  to  justify  the  difference  in  freight 
rates  which  he  upholds.  For  he  states  the  incidental  expenses,  outside 
of  tiie  regular  items  of  cost  of  hauling,  to  be  ITJ  cents  per  hundred 


36  The  Railways  and  the  Mepublic. 

pretexts  forces  us  to  believe  that  the  real  reason  why 
the  railways  uphold  this  discrimination  is  the  generally 
received  one  that  the  railway  corporations  themselves, 
or  the  influential  railway  managers,  have  large  pro- 
prietary interests  in  live-stock  yards  throughout  the 
country  ;  and  that  rather  than  allow  these  vested  inter- 
ests to  be  depreciated  by  the  general  introduction  of 
dressed  beef,  they  are  united  in  dejDriving  shippers 
and  consumers  the  benefit  of  the  economy  of  trans- 
portation made  possible  by  the  dressed-beef  trade.* 

Instances  of  rates  levied  under  careless  or  unfair 
classification  could  be  multiplied  indefinitely  by  the 
study  of  almost  any  railway  tariff  in  tlie  land.  But 
the  three  instances  named  amply  serve  the  purpose  of 
illustration.  One  of  them,  which  originally  grew  out 
of  a  classification  occasioned  by  war  values,  has  recent- 
ly been  upheld  by  the  authority  of  the  Trunk-Line 
pool ;  another  is  enacted  and  established  by  the  same 
authority ;  while  the  third  is  embodied  in  the  rates  of 
two  of  the  most  prominent  raihvay  corporations  in  the 
country.  The  rates  on  cotton  goods  simply  force  that 
trade  to  bear  a  greater  share  of  the  railway  charges  and 
pay  more  towards  the  dividends  and  interest  of  the 
railways  than  the  grocery  trade.    No  such  violation  of 

pounds  on  live-stock,  and  24  cents  on  dressed  beef.  The  difference  being 
fij  cents,  it  is  plain  tliat  if  the  rate  of  40  cents  yields  a  fair  profit  to  the 
railways  on  live  cattle,  the  proper  rate  for  dressed  beef,  calculated  on 
cost  of  service,  is  46^  cents. 

*  These  rates  have  been  widely  varied  since  the  decision  commented 
upon  above,  as  the  pool  was  able  to  sustain  the  discrimination,  or  as  the 
railways  broke  away  into  open  competition.  The  relative  influence  of 
competition  and  combination  upon  inequalities  in  rates  appears  from 
the  fact  that,  when  the  railways  were  competing,  the  rates  on  dressed 
beef  came  the  nearest  to  equality  with  those  on  live-stock ;  while,  when 
tbe  pool  was  able  to  enforce  its  rates,  the  discrimination  was  restored. 


Ten  Years  of  Discrimination.  37 

private  riglits  as  is  involved  in  the  driving  of  one  firm 
or  class  of  firms  out  of  business,  for  the  benefit  of  their 
competitors,  appears  in  this  instance.  The  burden,  as 
far  as  the  facts  appear,  is  laid  equally  on  the  entire  in- 
terest. That  there  is  an  inequality,  and  one  which,  in 
the  present  state  of  the  cotton-goods  trade,  is  hard  for 
it  to  endure,  is  unquestionable;  and  being  free  from 
the  more  outra2:eous  characteristics  of  other  discrimina- 
tions,  it  affords  a  very  favorable  instance  for  consider- 
ing dispassionately  the  question  as  to  the  equality  of 
railway  rates.  To  a  certain  extent  the  case  of  the  iron 
rates  at  Pittsburgh  presents  much  the  same  aspect,  with 
the  additional  feature  that  it  levied  a  great  share  of 
the  burdens  of  a  very  trying  business  period  upon  one 
city  for  the  benefit  of  others,  and  that  it  prevented  the 
manufacturers  of  that  city  from  seeking  the  best  means 
of  relief.  During  the  years  from  1875  to  1878  the  cost 
of  iron  in  Pittsburgh  was  so  nearly  that  of  iron  at  the 
English  mills  that  a  little  economy  in  the  cost  of  manu- 
facture would  have  enabled  her  to  sell  her  surplus  iron 
in  competition  with  English  manufactures  in  foreign 
markets.  The  diff"erence  between  the  averasje  freio-hts 
on  the  materials  and  what  they  would  have  been  if 
calculated  on  an  equality  with  the  grain  rates  was 
$3.30  on  a  ton  of  finished  iron.  Had  Pittsburgh  re- 
ceived that  advantage,  there  is  no  doubt  that  she  could 
have  sent  abroad  a  large  surplus  of  Iier  principal  staple 
of  manufacture ;  and,  instead  of  the  idleness,  want,  and 
desperation  which  culminated  in  the  riots  of  1877,  her 
working  classes  w^ould  have  enjoyed  steady  employ- 
ment through  all  that  trying  season.  The  practical 
edict  of  the  railway  rates  was,  however,  that  the  iron 
manufacturei's  of  Pittsburgh  not  only  should  not  have 


132954 


38  The  Railways  and  the  Rejpvhlic. 

the  benefit  of  a  foreign  outlet  for  their  chief  staple,  but 
that  they  should  pay  rates  which  strengthened  the  rail- 
ways so  that  they  could  furnish  a  foreign  outlet  to  the 
grain  trade  at  exceptionally  low  rates.  The  thii'd  in- 
stance partakes  largely  of  the  character  of  a  discrimi- 
nation between  competing  firms  or  classes  of  business; 
and  its  virtual  declaration  that  the  discoverers  of  im- 
proved economic  methods  for  the  prosecution  of  com- 
mercial enterprises  shall  not  secure  for  themselves  and 
the  public  the  benefit  of  their  new  devices,  amounts  to 
a  grave  attack  upon  public  rights,  and  a  usurpation 
by  the  corporations  of  jDower  such  as  no  monarch  ever 
wielded  under  a  constitutional  government. 

Discrimination  between  diflPerent  localities  or  cities 
involves  the  daily  exercise  by  railway  officials  who 
adjust  freight  tariffs  of  a  power  greater  than  that 
possessed  by  any  civilized  government  —  except,  per- 
haps, that  of  Russia.  It  is  not  alleged  that  the  rail- 
ways regularly  and  deliberately  adjust  freight  rates  in 
order  that  one  city  or  section  of  country  may  prosper, 
or  another  undeigo  adversity  or  decay.  It  may  be 
questioned  whether  any  discrimination  of  this  char- 
acter ever  arose  from  such  a  deliberate  intention.  Its 
cause,  where  a  cause  can  be  traced,  is  found  in  the 
external  and  irresistible  influences  of  competition  at 
the  points  which  secure  the  benefits,  and  their  absence 
at  the  points  Avhich  bear  the  burden.  It  is  also  often 
true  that  the  very  influences  which  force  the  railway 
manaGfer  to  make  the  discrimination  are  the  stronsrest 
inducements  for  him  to  stand  by  it  when  it  is  exposed. 
A  railway  which  is  cutting  rates  for  the  purpose  of 
securing  traffic  at  competitive  points  naturally  looks 
to   the   sustaining   of  rates    at   the   non  ■  competitive 


Ten  Years  of  Discrimination.  39 

points  to  furnish  the  sinews  of  wai'.  So  that  the  mer- 
chants or  manufacturers  whose  profits  are  cut  down 
or  who  are  wholly  shut  out  of  market  by  the  discrimi- 
nations against  their  community,  not  only  have  to  en- 
dure it,  but  have,  like  Isaac,  to  furnish  the  fuel  for  their 
own  sacrifice.  The  justice  of  such  things  wears  widely 
different  aspects,  when  looked  at,  now  exclusively  from 
the  standpoint  of  the  railway  interest,  and  again  as  in- 
volving the  welfare  and  equal  treatment  of  the  business 
public.  It  should  also  be  said  that  this  class  of  dis- 
criminations includes  more  cases  of  groundless  com- 
plaints against  the  railway  policy  than  perhaps  any 
other.  It  is  natural  for  the  people  of  any  given  local- 
ity to  turn  their  attention  principally  to  the  advantages 
wdiich  their  section  or  city  possesses,  if  allowed  a 
proper  development  by  the  railway  policy.  But  the 
tendency  of  different  sections  and  cities  to  plead  each 
its  own  case  has  resulted  in  numerous  arraignments  of 
the  railway  policy,  utterly  at  variance  with  each  other. 
The  patrons  of  the  railways  are  human,  and,  conse- 
quently, a  large  jiroportion  of  them  are  fallible  and 
greedy;  which  results  in  excessive  claims  and  incon- 
sistent condemnations  of  the  railway  tarififs.  But  the 
inconsistencies  and  self-contradictions  of  the  critics 
do  not  disprove  the  instances  of  discrimination  which 
have  involved  the  prosperity  of  whole  states  or  even 
sections  of  the  country,  or  which  have  burdened 
entire  cities  and  secured  to  their  i-ivals  rapid  growth 
and  enhanced  wealth.  Pursuing  this  class  of  discrimi- 
nations into  their  minor  details,  examples  will  be  found 
of  such  extravagant  and  eccentric  inecj^ualities  as  pro- 
duce a  doubt  whether  the  whole  business  of  fixing  tar- 
iffs is  not  an  immense  practical  joke.     In  order  fully  to 


4:0  The  Railways  and  the  Repvblic. 

appreciate  the  sublime  height  of  humor  rer.ched,  such 
cases  must  be  studied  in  conjunction  with  the  grave 
assertion  that  these  are  subjects  which  no  one  but  the 
trained  experts  can  understand. 

The  first  subject  naturally  discussed  under  this  head 
is  the  discrimination  between  the  grain  producers  of 
the  West  and  the  ag-ricultural  districts  of  the  East. 
For  many  years  it  has  been  the  practice  of  the  railways 
to  charge  as  much  for  carrying  agricultural  products 
from  Ohio,  Western  Pennsylvania,  or  Western  New 
York  to  the  seaboard  as  from  Chicago  to  the  same 
destination.  At  times  the  charge  for  the  shorter  haul 
has  been  much  greater,  the  latest  example  having  oc- 
curred during  the  cutting  of  rates  in  the  spring  of  the 
present  year.  This  has  been  practically  acknowledged 
by  eminent  railway  authorities,  who  justify  it  on  the 
ground  that  if  the  western  farmers  are  not  allowed 
especially  low  rates  tlieir  products  cannot  be  sold  in 
the  markets  of  Europe.  This  is  a  practical  claim  that 
the  railways  should  carry  western  products  at  a  loss, 
and  that  other  classes  of  shippers  should  support  them 
in  doing  so  by  paying  rates  which  will  yield  such 
profits  as  to  make  up  the  loss  on  the  grain  traffic. 
The  idea  is  absurd,  and  is  never  sincerely  entertained 
in  the  practical  deliberations  of  the  railways.  The  fac- 
tor ^vhich  brings  the  average  rate  on  grain  from  the 
West  to  about  half  a  cent  per  ton-mile  is  the  competi- 
tion of  the  ^vater  routes,  and  the  fact  that  it  will  at 
once  pay  the  railways  a  profit  and  induce  the  majority 
of  the  grain  shipments  to  take  rail  rather  than  water 
transportation.  But  if  the  rate  of  half  a  cent  per  ton- 
mile  from  the  Chicago  or  St.  Louis  elevators  is  remu- 
nerative,  what  is  the  obvious  conclusion  as  to  the  rate 


Ten  Years  of  Discrimination.  41 

of  one  cent  per  ton-mile  from  the  Ohio  or  Western 
New  York  elevator?  Simply  that  while  the  force  of 
competition  causes  the  railways  to  accept  moderate  or 
even  narrow  profits  on  the  Western  grain  traffic,  the 
absence  of  that  force  allows  them  to  collect  what  by 
comparison  are  shown  to  be  exorbitant  profits  on  the 
grain  shipped  by  the  farmers  of  the  Eastern  or  Middle 
States. 

The  efi*ect  of  the  advantages  given  by  the  railway 
policy  of  the  last  ten  years  to  producers  of  the  West 
over  their  competitors  in  the  East  has  been  greater 
than  is  generally  understood.  It  would  not  be  singu- 
lar, when  the  Eastern  and  Middle  States  have  been 
most  thickly  covered  by  the  railways,  and  the  farming 
districts  are  as  fertile  as  ever,  that  their  cereal  crops 
should  diminish.  That  mio-ht  be  the  natural  result  of 
superior  facilities  for  sending  dairy  products  and  fruits 
to  market,  and  of  superior  wealth  in  the  production  of 
highdjred  stock.  But  under  such  a  development  the 
value  of  Eastern  farms  would  increase  simultaneously 
with  that  of  the  AVestern  farms.  When  we  find  that 
an  actual  decrease  in  the  valuation  of  the  farming 
property  of  the  East  has  taken  place,  the  inference  is 
unavoidable  that  there  has  been  something  abnormal 
in  the  development  of  the  country.  Yet  this  is  what 
is  shown  by  the  census  returns  of  the  last  two  decades. 
The  depreciation  is  thought  to  have  commenced  pre- 
vious to  1870,  but  its  operation  is  clearly  shown  in 
the  comparison  of  the  figures  of  1870  and  1880.  In  a 
decade  in  which  the  total  value  of  all  farming  lands 
in  the  United  States  increased  nearly  a  thousand 
millions  of  dollars,  or  about  ten  per  cent.,  there  was  a 
general  decrease  in  the  valuation  of  the  farming  lands 


42  The  Hallways  and  the  Rejpiihlic. 

of  the  states  nearest  to  the  seaboard  Diarkets,  and  this 
depreciation  in  the  oldest  and  richest  states  is  shown, 
by  the  census  reports,  to  aggregate,  in  the  Noi'thern 
Atlantic  States,  more  than  $350,000,000/- 

It  hardly  needs  to  be  said  that  vvhere  development 
is  uniform,  every  year  should  add  value  to  the  land 
located  nearest  to  market.  Here,  however,  we  are 
confronted  with  the  fact  that  the  lands  most  accessi- 
ble to  the  great  seaboard  cities,  and  nearest  to  the 
foreign  markets  for  our  surplus  products,  have  under- 
gone an  actual  and  general  depreciation  in  value. 
This  phenomenon  is  explained,  wdien  we  find  the  rail- 
ways charging  sixty -five  or  seventy-five  cents  on  a  tub 
of  butter  to  New  York  from  a  point  one  hundred  and 
sixty -five  miles  away,  while  the  rate  from  Elgin, 
Illinois,  one  thousand  miles  away,  was  thirty  cents. 
Consider  the  eflfect  of  similar  discriminations  through- 
out the  whole  list  of  agricultural  products,  and  the  de- 
cay of  Middle-States  farming  is  adequately  explained. 
The  railways  have,  through  the  inequalities  of  their 

*  The  depreciation  of  farming  lands  wliicli  took  place  in  the  North- 
ern Atlantic  States,  Avhile  their  acreage  of  improved  lands  increased,  is 
shown  by  the  following  table,  taken  from  tlie  census  reports : 

Increased  Acreage  Depreciatiou  in 

of  Improved  Lands.  Value. 

New  York     .  .  .  2,000,000 $226,000,000 

Pennsylvania  .  .  1,900,000 68,000,000 

New  Jersey  .  .  110,000 67,000,000 

Maryland      .  .  .  428,000 5,000,000 

Delaware      .  .  .  48,000 10,000,000 

Vermont       .  .  .  113,000 30,000,000 

Maine       ....  567,000 2,000,000 

Connecticut  and  New  Hampshire  lost  slightly  in  acreage,  with  a  cor- 
responding loss  in  valuation  of  $3,000,000  and  $5,000,000  respectively. 
Massachusetts  presented  the  unique  example  of  a  gain  of  $30,000,000  in 
valuation. 


Ten  Years  of  Discrimination.  43 

rates,  placed  the  fiwmers  of  those  states  practically  far- 
ther from  market  than  their  competitors  in  the  West. 

Yet  the  causes  which  give  rise  to  this  discrimina- 
tiou  are  plainly  external  to  the  management  of  the 
railways.  Every  railway  manager  has  the  alternative 
presented  to  him  of  either  carrying  Western  grain  at 
the  half  cent  per  ton-mile,  which  is  about  the  average 
rate,  or  of  not  carrying  it  at  all.  If  he  does  not 
concede  that  low  rate  he  knows  that  the  traffic  will 
go  to  the  water  routes  or  to  some  other  railway,  and 
he  takes  it  for  the  sake  of  the  narrow  profit  that 
there  is  in  it.  In  the  present  condition  of  railway 
ethics  it  would  be  expecting  superhuman  justice  to 
hope  that  the  president  or  general  freight  agent  would 
reduce  local  rates  in  proportion.  They  count  on  the 
local  traffic  as  a  certainty,  and  while  an  impartial  ob- 
server might  see  that  the  most  permanent  prosperity 
of  the  enterprise  lies  in  stimulating  local  traffic  by  as 
low  rates  as  are  2:iven  to  throuo;h  traffic,  it  is  natural 
that  railway  officials,  who  need  high  local  rates  to 
meet  dividends  and  interest  charges,  should  make 
them  as  high  as  possible,  without  regard  to  the  simul- 
taneous and  inconsistent  allowance  of  low  I'ates  to 
through  shippers.  It  is  natural,  and  seems  inevitable, 
in  the  present  constitution  of  railway  management,  that 
the  discrimination  in  favor  of  throu2;h  c-rain  should 
exist ;  but  the  fiict  that  such  a  discrimination  has 
arbitrarily  transferred  $350,000,000  of  values  from  the 
East  to  the  West  is  so  grave  that  earnest  inquiry  is 
demanded  whether  it  is  really  inevitable. 

Prominent  among  other  discriminations  Ijetween  lo- 
calities is  that  against  the  iron  business  of  Pittsburgh 
already  alluded  to,  which  formed  so  great  a  factor  in  the 


44  The  Railways  and  the  Republic, 

depression  of  that  industry  from  1874  to  1878.  This 
discrimination  arose  entirely  from  the  fact  that,  during 
the  period  referred  to,  the  iron  trade  of  that  city  was, 
as  far  as  westward  shipments  were  concerned,  under 
the  control  of  a  single  railway  combination;  while  the 
existence  of  competition  in  the  freighting  business  of 
such  competing  points  as  Cleveland,  the  Mahoning 
and  Shenango  valleys,  Troy,  N.  Y.,  and  the  Eastern 
Pennsylvania  iron  mills  over-balanced  the  natural  ad- 
vantages which  Pittsburgh  ought  to  have  enjoyed. 
The  lowest  rates  on  the  materials  used  in  the  manu- 
facture of  iron,  during  that  period,  were  given  to  the 
works  in  the  Mahoning  and  Shenango  valleys.*  These 
discriminations  were  in  force  after  the  Pennsylvania 
Railroad  had  made  an  effort  to  reform  greater  ones, 
and  to  place  Pittsburgh  on  an  equality  with  the  other 
points    deprived    only    of  its   natural    manufacturing 

*This  comparison  is  used  because  the  conditions  of  mEinufactnre  were 
very  ncarlj'  similar,  while  those  at  Cleveland,  Troy,  and  Eastern  Pennsyl- 
vania v^cre  so  dissimilar  that  a  comparison  of  freight  rates  is  difficult. 
On  the  hauling  of  ore  to  the  blast  furnaces  the  charges  to  Pittsburgh 
ranged  from  $2.95,  in  the  early  part  of  the  period  named,  to  $2.10  at  its 
close,  while  the  charge  to  Youngstown  was  $1.25  at  the  opening  of  the 
period  and  $1  at  its  close.  The  rates  on  pig  iron  shipped  from  the 
blast  furnaces  of  these  valleys,  to  Cleveland  and  to  Pittsburgh  respec- 
tively, an  equal  distance,  showed  a  constant  advantage  to  Cleveland  of 
from  56  cents  per  ton  in  1874  to  12  cents  in  1878.  These  may  seem  to 
be  unimportant  differences,  but  when  their  aggregate  is  taken  in  a  ton 
of  finished  iron  it  is  of  vital  importance.  The  total  freight  charges 
on  a  ton  of  pig  iron  made  in  Pittsburgh  in  1878  wore  $1.90  per  ton 
greater  than  if  it  were  made  in  the  Mahoning  Valley,  on  an  equal 
mileage  and  handling.  On  a  ton  of  manufiictured  iron  in  the  mills,  the 
discrimination  against  Pittsburgh  was  $2.33.  Carrying  oat  the  compari- 
son, the  total  freight  charges  on  a  ton  of  bar  iron  manufactured  at  Pitts- 
burgh and  delivered  at  Chicago  were  $11.10,  while  from  the  Mahoning 
Valley  these  charges  amounted  to  $7.57  on  all-rail  routes.  By  the  lake 
and  rail  route  the  discrimination  was  50  cents  per  ton  greater. 


Ten  Years  of  Discrzjnination.  45 

advantages.  All  other  things  being  equal  a  discrim- 
ination of  $3  per  ton  would,  during  that  period  of 
depression,  have  swallowed  up  the  profits  of  manu- 
fiicture.  But  Pittsburgh  had  the  advantage  of  cheap 
fuel,  and  the  principle  upon  whicli  i-ailway  freights  are 
assessed  is  shown  by  the  fact  that  the  Pennsylvania 
Railroad,  in  reari'auging  its  charges,  obtained  an  ex- 
pert's estimate  of  the  advantage  possessed  by  the 
Pittsburgh  manufacturers  in  the  cheapness  of  coal, 
and  preserved  just  enough  discrimination  to  practically 
appropriate  that  advantage  by  the  excess  of  rates 
charged  to  the  manufacturers  of  that  city  over  its 
competitors  in  the  Western  markets.* 

Here  is  a  rather  curious  example  of  the  anomalous 
effects  produced  by  such  inequalities.  At  that  period, 
Pittsburgli,  by  competitive  rates  to  the  East,  was 
enabled  to  sell  a  large  share  of  its  product  in  the 
country  adjacent  to  the  Eastern  rolling-mills :  while 
the  rates  from  the  New  York  and  Eastern  Penn- 
sylvania mills  to  Chicago,  being  $1  or  $2  per  ton 
cheajDer  than  from  Pittsburgh,  enabled  them  to  con- 
trol the  Western  market.  In  other  words,  by  means 
of  its  advantages  for  manufticture  and  its  competing 
Eastern  route,  Pittsburgh  was  enabled  to  sell  its  iron 
almost  at  the  doors  of  the  Eastern  mills,  while  the 
Eastern  mills,  by  means  of  their  competing  Western 

*  The  eflfect  of  these  burdens  on  Pittsburgh's  leading  industry  was 
shown  by  the  rapid  growtli  of  tliat  industry  after  the  business  men  had 
been  driven  to  the  construction  of  a  competing  line.  Tlic  aggregate 
product  of  iron  and  steel  in  Pittsburgh  for  the  year  1878  was  417,147 
tons;  for  1883  it  was  877,881  tons.  Tlie  first,  after  four  years  of  discrim- 
ination, was  17.G  per  cent,  of  tlie  entire  product  of  the  country;  tlie  sec- 
ond, after  five  years  of  moderate  railway  competition,  was  20.8  per  cent,  of 
the  iron  production  of  the  United  States. 


46  The  Hallways  and  the  Rej>uhlic. 

routes,  were  able  to  sell  iron  in  markets  mucli  nearer 
to  Pittsburgh  than  to  the  mills  supplying  them.  By 
means  of  this  peculiar  adjustment  of  rates,  there  was 
an  utterly  useless  haul  of  Eastern  iron  through  Pitts- 
burgh to  the  West,  and  of  Pittsburgh  iron  sent  East  to 
take  its  place.  Whether  the  loss  by  that  unnecessary 
transportation  was  imposed  upon  the  manufacturers  or 
the  railways  or  the  consumers,  or  divided  among  all 
three  of  them,  there  is  no  certain  means  of  determining. 
It  is  only  clear  that  an  abnormal  adjustment  of  freight 
rates  caused  an  utter  waste  of  human  effort  by  the 
unnecessary  transportation  of  some  hundred  thousand 
tons  of  iron  several  hundred  miles. 

Another  discrimination  affectiog  vast  interests,  and 
illustrating  in  a  strong  light  the  principles  upon  which 
rates  are  too  often  fixed,  is  that  which  attracted  so 
much  attention  last  year  in  the  anthracite  coal  rates  to 
Philadelphia.  This  is  one  of  the  fruits  of  what  is, 
with  one  exception,  the  most  successfully  managed 
railway  combination  in  the  country,  and  the  fticts 
furnish  a  rather  severe  commentary  on  the  claim  of 
several  eminent  gentlemen  that  the  system  of  pooling 
furnishes  a  remedy  for  the  evils  of  discrimination. 
For  many  years  the  shipment  of  coal  to  the  principal 
cities  of  the  East  has  been  controlled  by  a  combina- 
tion of  the  great  coal-carrying  railways.  This  com- 
bination is  complicated  by  the  fact  that  its  members 
are  miners  and  sellers  of  coal,  as  well  as  carriers  fi'om 
the  mines  to  the  markets.  It  is  not  necessary  at  this 
point  to  speak  of  the  dangers  to  legitimate  trade 
arising  from  the  presence  of  a  carrier  that  engages  in 
the  mining  business,  with  the  power  of  shutting  its 
competitors  out  of  the  market  when  necessary  to  carry 


Ten  Years  of  Discrimination.  47 

out  its  o^vu  purposes.  All  that  is  required  here  is  to 
notice  that  the  hybrid  character  of  the  corporation, 
hauling  anthracite  coal  to  Philadelphia,  enabled  it, 
through  combinations  with  other  railways,  to  exact 
from  that  city''^'  considerably  more  for  the  anthracite 
coal  produced  in  its  immediate  vicinity  than  was  paid 
by  cities  one  or  two  hundred  miles  fai'ther  away. 
Voluminous  explanations  of  this  discrimination  were 
made.  The  heart  of  the  subject  was,  however,  touched 
by  Mr.  James  E.  Gowan  when,  in  answer  to  a  question 
before  a  committee  of  the  Philadelphia  Councils,  he 
declared,  with  regard  to  the  fact  that  his  company 
sold  coal  in  Baltimore  at  35  cents  a  ton  less  than  in 
Philadelphia:  "I  have  no  doubt  that  the  Philadel- 
phia and  Reading  Coal  and  Iron  Company,  like  any 
merchant  or  any  other  corporation,  must  meet  the 
exigencies  of  the  market."  In  other  words,  the  com- 
panies could  not  altogether  control  the  market  in 
other  cities,  although  combinations  had  enabled  them 
greatly  to  advance  the  prices  over  those  of  the  ante- 
pool  period;  but  in  Philadelphia  their  control  was  so 
absolute  that  it  fixed  a  greater  price  and  exacted  a 

*  According  to  the  published  rates  of  the  dual  corporation  known  in- 
terchangealjly  as  the  Philadelpiiia  and  Reading  Railway  Company  and 
the  Philadelphia  and  Reading  Coal  and  Iron  Company,  tlie  price  of  stove 
coal  in  March,  1884,  delivered  on  board  vessels  at  Port  Richmond,  for 
shipment  beyond  tlie  capes  of  the  Delaware,  was  $3.90.  For  delivery 
within  the  harbor  tlic  price  of  the  same  coal  was  $4.45,  while  the  price 
of  the  same  coal  delivered  by  cars  to  the  city  yards  was  $4.80.  It  was 
further  shown  in  tlie  inquiry  raised  on  this  subject  tliat  on  coal  for 
shipment  outside  the  capes  a  drawback  was  granted  by  tlie  railway  and 
coal-producers  conjointly,  the  result  being  that  Philadelpiiia,  at  a  dis- 
tance of  90  miles  from  the  coal-fields,  paid  a  retail  ])rice  of  $G.50  per  ton, 
while  New  York,  120  miles  away,  paid  $5.50;  Baltimore,  188  miles  dis- 
tant, paid  $G;  and  Boston,  with  354  miles  of  transportation,  got  its  coal 
at  $5.70. 


4:8  The  Railways  and  the  Republic. 

greater  transportation  charge  on  the  coal  used  at  its 
own  terminal  city,  than  on  the  coal  sent  to  a  more 
distant  point.  The  discrimination  in  the  open  rates 
of  the  company,  between  the  city  retailers  and  the 
shippers  to  Boston  or  New  York,  was  alleged  by  the 
railway  officials  to  be  covered  by  the  cost  of  switching 
and  delivering  the  cars  to  the  retail  yards.  As  this 
discrimination  amounts  to  $6  or  $8  a  car,  there  can  be 
no  doubt  of  its  lavish  liberality;  but  it  still  leaves 
50  cents  per  ton  of  the  discrimination  unexplained ; 
while  the  different  charge  for  exactly  the  same  ser- 
vice on  coal  destined  to  points  within  the  Delaware, 
over  that  on  coal  going  outside  the  capes,  was  55 
cents.  Rebates  were  alleged  to  increase  that  discrim- 
ination by  $1  per  ton,  while  the  fact  that  Kew  York 
and  Boston,  with  a  greater  transportation  than  Phila- 
delphia, got  coal  at  retail  70  cents  or  $1  per  ton 
cheaper,  proved  that  the  discrimination  did  exist  to  a 
great  amount.  On  the  very  plausible  hypothesis  that 
the  rates  w^hich  w^ere  profitable  for  the  railroads  to 
carry  coal  destined  for  Boston  or  New  Yoi'k  would 
also  be  profitable  if  the  coal  were  consumed  in  Phila- 
delphia, the  aggregate  discrimination  in  the  item  of 
anthracite  coal  alone  was  estimated  by  a  local  author- 
ity at  $2,878,000  annually.  A  similar  combination  of 
railways  was  shown  by  testimony  before  an  investiga- 
tion of  the  Philadelphia  Gas  Trust,  to  establish  a  no 
less  decided  discrimination  on  the  gas  coal  furnished 
to  the  city  gas-works."^* 

*  It  is  shown  in  the  testimony  there,  as  summarized  by  Mr.  John  Nor- 
ris  of  the  Philadelphia  Record^  that  the  average  price  of  Pennsylvania  and 
Westmoreland  gas  coal  was  less  by  50  cents  per  ton  in  New  York  than 
in  Philadelphia;  while  about  as  signal  an  instance  of  arbitrary  discrim- 


Ten  Years  of  Discrimination.  49 

It  is  not  surprising  that  the  people  of  Philadelphia 
considered  it  grievous  and  anomalous  that  a  combina- 
tion of  railways,  the  leading  members  of  which  owed 
their  very  existence  to  Philadelphia  capital,  should 
impose  an  annual  burden  on  them,  in  the  single  item 
of  coal,  of  $3,750,000  in  excess  of  what  other  cities 
were  charged  on  the  same  class  of  freight.  Such  a 
discrimination  against  any  city  is  a  grave  matter;  but 
it  is  especially  paradoxical  to  the  Philadelphians  that 
it  should  be  laid  on  Philadelphia  by  the  railways 
which  Philadelphia  has  built.  Yet  it  may  be  doubted 
if  the  burdening  of  any  community,  by  the  mere  opera- 
tion of  unequal  freight  rates  as  between  that  point 
and  another,  contains  half  so  great  a  threat  to  public 
rights  as  the  avowal  openly  made  by  the  railways 
in  this  instance,  of  the  right  to  impose  different  rates 
with  reference  to  the  ultimate  destination  of  the  freig-ht 
entirely  beyond  their  lines.  When  the  Philadelphia 
and  Reading  declared  that  it  would  deliver  coal  on 
board  schooners  at  $3.90  if  the  schooners  carried  it  to 
Boston  or  New  York,  but  would  charge  them  50  cents 
more  if  they  carried  it  to  Wilmington  or  Chestei", 
it  assumed  a  power  of  arbitrary  dictation  little  short 
of  tyranny.     It  is  not  the  business  of  any  raihvay  cor- 

ination  as  any  on  record  came  to  light  in  the  case  of  a  contractor,  who 
had  contracted  to  deliver  50,000  tons  of  coal  to  the  Philadcli)liia  Gas- 
works. By  a  combination  of  the  Pennsylvania  and  Baltimore  and  Oliio 
Railroads,  he  was  rendered  unable  to  fuUil  his  contract,  the  rate  of  freight 
being  raised  $1  and  $1.25  per  ton  as  soon  as  it  was  discovered  tliat  the 
coal  whicli  he  sliipped  was  intended  for  Pliiladelphia  and  not  for  New 
York  and  Boston.  In  tlie  statement  of  the  case  made  by  Jlr.  John 
Norris  to  tlie  councils'  committee  the  average  discrimination  against 
Pliiladelphia  on  bituminous  coal  was  stated  to  be  $1  per  ton,  which 
swelled  the  aggregate  annual  cost  of  the  discrimination  against  tho  city 
to  $3,750,000. 

4 


50  The  Hallways  and  the  Repvhlic. 

poration  to  control  the  distribution  of  any  staple  after 
the  service  of  transportation  has  been  performed ;  and 
when  a  corporation  goes  beyond  its  own  line  by  the 
declaration  that  it  will  give  better  rates  if  the  freight 
is  carried  to  one  locality  than  if  it  is  carried  to  another, 
it  is  but  a  short  step  to  the  arbitrary  prohibition  by 
the  railways  of  any  delivery  of  coal  to  such  localities 
as  they  may  wish  to  exclude  from  the  general  market. 
How  easily  that  step  is  taken  w^ill  be  shown  farther 
on,  in  the  consideration  of  some  other  features  of  the 
coal-carrying  business. 

In  the  examples  of  discrimination  hitherto  adduced, 
the  difference  in  rates  has  been  moderate,  the  magni- 
tude of  the  interests  concerned  is  of  great  importance. 
Not  less  important  but  far  more  striking  are  the 
wild  eccentricities  of  railway  rates  which  are  found 
in  almost  every  part  of  the  nation,  in  the  differences 
on  various  classes  of  freiirht,  in  the  charjres  for  Ions: 
and  short  hauls.  The  almost  numberless  examples 
in  which  the  rates  to  points  halfway  fi'om  the  AVest 
to  the  seaboard  were  greater  than  for  carrying  the 
same  freight  all  the  way,  were  illustrated  at  Pitts- 
burgh in  the  period  already  referred  to;*  but  they 
are  made  commonplace,  not  only  by  the  frequency 
of  their  recurrence,  but  by  the  abundance  of  more 


*In  March,  1878,  the  rates  on  grain  and  flour,  from  Chicago  to  Pitts- 
burgh, ■o'cre  25  cents,  while  to  New  York,  involving  350  miles  more  trans- 
portation, they  were  15  cents.  In  May  of  tlie  same  year  grain  was  hauled 
through  Pittsburgh  to  Pliiladelphia  and  Baltimore  at  13  cents,  while  if 
the  railways  had  stopped  the  freight  at  that  city,  and  saved  themselves 
the  carriage  of  350  miles  over  the  mountains,  they  would  have  charged 
18  cents.  These  are  but  specimens  which  might  be  multii)lied  indefi- 
nitely, as  shown  by  the  New  York  investigation. — Report  of  Hepburn 
Committee^  pp.  55,  53. 


Ten  Years  of  Discrimination.  51 

glaring  examples  of  the  same  sort.*  The  instances  in 
wbicli  a  rate  for  a  given  distance  has  been  fixed  and 
maintained  at  such  an  excess  of  the  charge  for  trans- 
porting the  same  freight  the  same  distance  and  as 
much  farther,  in  addition,  as  to  make  the  proportion 
from  three  to  four  times  as  great,  are  multitudinous. 
The  examples  furnished  from  the  southern,  western, 
and  transcontinental  lines  which  have  been  quoted 
by  high  authority  and  discussed  in  Congress  show 
their  almost  universal  character.f  Those  cited  from 
Illinois,  Mississippi,  and  Georgia  are  striking  illustra- 

*  A  striking  illustration  of  a  similar  discrimination  against  tlie  glass 
industry  was  related  to  me  by  a  glass  manufacturer  of  fruit  jars,  doing 
business  in  Pittsburgh.  lu  the  summer  of  1876  he  made  large  contracts 
for  the  delivery  of  fruit  jars,  by  car-load  lots,  in  Chicago,  Toledo,  and 
Detroit.  In  order  to  figure  the  cost  of  delivery  exactly,  lie  obtained  a 
special  rate  of  $50  per  car-load  to  Chicago,  or,  as  a  car-load  of  this  ware 
weighs  less  than  20,000  pounds,  28  cents  per  hundred.  Towards  the 
close  of  the  season  he  found  it  necessary  to  fill  some  of  his  orders  by 
buying  the  ware  in  Philadelphia,  and  in  shijjping  from  that  point  found 
that  the  open  rate  was  14  cents,  or  exactly  one  half  the  charge,  for  nearly 
double  the  distance.  On  a  complaint  against  this  remarkable  inequal- 
ity, the  rate  from  Pittsburgh  was  made  exactly  the  same  as  from  Pliila- 
delphia,  leaving  a  discrimination  as  regards  distance  of  about  three-sev- 
enths of  the  whole  charge. 

fThe  case  which  was  heard  before  the  Illinois  Railway  Commission 
last  year  showed  a  rate  of  IG  cents  on  fourth-class  freight  from  Chicago 
to  Kankakee,  a  distance  of  56  miles,  while  on  the  same  freight  to  Mat- 
toon,  a  distance  of  172  miles,  the  rate  was  10  cents.  This  inequality  was 
produced  by  railway  competition  at  the  latter  point. 

The  Winona  and  Memphis  example,  which  occupied  so  important  a 
place  in  tlie  congressional  debates,  showed  a  charge  of  $1  per  Ijale  on 
cotton  from  Memphis  to  New  Orleans,  a  distance  of  450  miles ;  while 
from  Winona  to  New  Orleans,  a  distance  of  275  miles,  the  charge  was 
$3.25  per  bale.  River  competition  to  Memphis  was  the  cause  of  this  dis- 
crepancy. Another  example  of  the  same  sort  was  adduced  in  Congress, 
in  a  rate  of  $1  from  New  York  to  Atlanta,  wliile,  on  the  same  class,  un- 
der the  influence  of  ocean  competition,  the  rate  was  made  75  cents  to 
New  Orleans,  about  double  the  distance. 


52  The  Railways  and  the  Rejpublic. 

tions  of  the  utter  disregard  of  distance  wliicli  prevails 
in  the  making  of  railway  rates  as  between  competi- 
tive and  nou  -  competitive  points ;  but  they  cannot 
present  any  such  astounding  triumph  over  the  facts 
of  geography  and  the  cost  of  service  as  is  to  be  found 
in  the  tariffs  of  the  Pacific  railways,  as  quoted  by  the 
ISTew  York  Chamber  of  Commerce  and  referred  to  in 
the  House  of  Representatives.'"'  It  would  be  hard  for 
any  one  not  acquainted  with  transcontinental  geogra- 
phy to  comprehend,  from  the  rates  of  the  Pacific  roads, 
that  each  reduction  in  the  distance  for  which  the  freight 
is  hauled  brings  with  it  a  more  than  pro2')ortionate  in- 
crease of  charges. 

No  less  surprising  a  result  of  the  eccentricities  of 
railway  rates  is  to  be  found  in  the  cases  which  were 
experienc4id  at  Pittsburgh,  and  are  shown  by  the  Kew 
York  investigation  to  have  been  repeated  in  that 
State,f  where  the  inequalities  of  rates  have  actually 

*Tlie  transcontinental  rates,  given  in  the  report  on  discriminations 
to  the  New  York  Chamber  of  Commerce,  are  as  follows : 

New  York  to  Salt  Lake $4.95 

"  "  Ogden 4.65 

"  "  Dillon,  Montana 3.45 

"  "  San  Francisco 2.25 

Other  specimens  of  the  fantasies  of  the  Pacific  railway  tariffs  were  re- 
ferred to  in  Congress  last  winter,  as  follows :  New  York  to  San  Fran- 
cisco, $300  per  car;  to  Reno  or  Virginia  City,  $500.  The  same  outra- 
geous rule  was  also  found  to  be  in  force  on  the  Northern  Pacific,  where 
the  rate  on  hardware  from  Chicago  to  Lincoln  Station,  100  miles  east 
of  Portland,  was  $400  ;  to  Portland,  $200.  The  principle,  or,  rather,  ab- 
sence of  i^rinciple,  on  which  these  discrepancies  were  based,  was  that  the 
interior  merchants  must  pay  the  througli  rate  to  the  Pacific  coast,  and 
the  local  rate  back  to  the  local  point,  although  the  goods  were  dropped 
at  the  local  point  on  their  way  west. 

tW.  W.  Mack,  of  Rochester,  shipped  goods  to  New  York,  and  liad 
them  reshipped  to  Cincinnati  through  Rochester,  and  made  saving  of  14 


Ten  Years  of  Discrimination,  53 

caused  freights  to  be  hauled  from  the  original  point 
of  shipment  away  from  their  destination  to  a  competi- 
tive point,  and  thence  shipped  back  again  through  tlie 
place  where  they  originated.  The  waste  of  this  wholly 
useless  haul  represents,  perhaps,  the  climax  of  the  per- 
sistent stupidity  controlling  freight  rates.  The  trained 
and  scientific  railway  management  sometimes  lauded  as 
infallible  might  at  least  have  perceived  the  economy 
to  the  corporations  of  omitting  the  totally  unnecessary 
haul  of  seven  hundred  miles,  and,  while  charging  the 
shippers  just  the  same,  allowing  them  the  saving  of 
time  by  shipping  the  goods  directly  from  Pittsburgh 
or  Rochester  to  the  point  of  destination.  Indeed,  a 
little  liberality  might  have  omitted  the  wasted  haul, 
and  only  charged  half  rates  for  it.  Either  of  these 
amendments  might  have  been  made  favorably  to  the 
shippers;  but  through  1876  and  1877  the  railway  offi- 
cials continued  so  convinced  of  the  utter  correctness 
of  their  freight  charges  that  the  spectacle  of  a  car-load 
of  Pittsburgh  manufactures,  destined  for  Texas  or 
California,  but  commencing  its  journey  by  starting  in 
the  other  direction,  on  a  trip  to  New  Yoi'k  and  back 


cents  per  100  lbs. ;  on  tlie  same  process  for  a  shipment  to  St.  Louis  lie 
saved  18  cents  per  cwt.,  there  being  a  wholly  unnecessary  carriage  of  the 
goods  in  each  case  of  seven  hundred  miles. — New  Toric  Investigating 
Committee'' s  Report,  p.  55. 

A  considerable  amount  of  manufactured  iron  and  steel,  glassware,  and 
white-lead  was  to  be  shipi^ed  some  years  ago  from  Pittsburgli  to  points 
in  Texas,  California,  and  otiier  distant  localities,  and  in  one  case  to  so 
near  a  point  as  Chattanooga.  The  rates  from  New  York  and  Philadelphia 
to  these  markets  for  the  articles  referred  to  were  so  much  lower  than 
from  Pittsburgh  that  it  eftected  an  actual  saving  to  the  Pittsburgh  manu- 
facturers to  sliip  their  goods  by  tlie  car-load  to  New  York,  and  thence  to 
have  them  hauled  back  again  over  tlie  same  track  tlirough  Pittsburgh  to 
the  points  for  which  they  were  destined. 


54  The  Railways  and  the  Bejpublic. 

again  througli  Pittsburgh,  was  a  by  no  means  infre- 
quent phenomenon  of  railway  business. 

No  exhaustive  list  of  discriminations  .can  be  given. 
The  typical  cases  cited  suffice  to  show  that  gross  injus- 
tice has  been  practised  on  a  large  scale,  and  that  the 
power  to  favor  one  community  at  the  expense  of  an- 
other has  been  exerted  by  the  great  corporations. 

When  all  these  examples  are  traced  back  to  their 
source,  an  examination  of  the  causes  which  produce 
them  will  show  that  in  every  case  they  arise  from 
the  imperfect  working  of  competition.  Other  influ- 
ences may  vary  their  form  or  change  their  aspect; 
but  all  of  them  originally  come  from  the  fact  that,  in 
one  way  or  another,  competition  operates  in  favor  of 
the  locality  which  gets  the  best  rates,  while  its  absence, 
or  the  obstruction  of  its  natural  influence,  prevents 
the  same  advantage  from  being  secured  at  another. 
In  most,  if  not  all,  of  the  important  discriminatior.s 
against  localities,  the  pressure  of  competition  at  one 
point  in  favor  of  low  rates  there,  and  its  absence  else- 
where, placing  it  within  the  power  of  the  railway 
management  to  maintain  rates  there,  constitutes  an 
influence  external  to  the  management  of  any  single 
corporation,  and  greater  than  any  individual  power 
of  resistance.  The  conclusions  from  these  instances 
then  are:  (1)  that  this  class  of  discriminations  has 
existed  and  does  exist  to  an  onerous  and  dangerous 
extent,  affecting  some  of  the  fundamental  interests 
of  the  land  and  establishing  practical  injustice ;  and 
(2)  that  it  grows  not  so  much  out  of  the  arbitrary 
and  absolute  edicts  of  the  railway  managers,  as  from 
the  present  constitution  of  the  railway  business,  which 
creates  competition  at  certain  points  and  leaves  others 


Ten  Years  of  Discrimination.  55 

without  that  benefit,  and  whicli  also  develops  combina- 
tions for  the  abolition  of  competition  where  it  has  been 
pushed  to  an  extreme  degree.  When  these  points  are 
established  an  insis-ht  into  the  fundamental  factors  of 
the  railway  problem  is  made  comparatively  easy. 

Discriminations  in  classification  are  prescriptive  and 
unreasonable;  discriminations  between  localities  are 
burdensome  and  dangerous ;  discriminations  between 
individuals  are  corrupt  and  criminal.  The  first  class 
are  handed  down  by  custom,  and,  while  sometimes 
embodying  an  inequality  that  is  burdensome,  scarcely 
amount  to  an  aggression  upon  the  existence  of  any 
industry  or  trade.  The  second  arise  from  the  neces- 
sity of  the  railways,  as  generally  conducted,  and, 
therefore,  rarely  involve  a  deliberate  attack  upon  any 
community  or  section.  But  no  such  redeeming  cir- 
cumstances attend  the  fixins;  of  discriminatimx  rates  as 
between  individual  shippers.  It  is  the  most  vicious 
and  unjustifiable  form  of  the  evil.  A  railway  ofiicial 
who  gives  one  merchant  better  rates  than  his  competi- 
tor must  do  so  with  the  distinct  purpose  of  securing 
to  the  reci])ient  of  the  ftivor  advantages  which  the 
competitor  cannot  enjoy.  The  injurious  nature  of  this 
power  is  heightened,  and  the  difliculty  of  detecting  its 
exertion  is  increased,  by  its  secret  operation.  The  ad- 
vantages to  favored  shippers  being  generally  granted 
Ijy  secret  rates  or  drawbacks,  the  inequality  is  rarely 
detected  until  the  injury  is  done.  The  same  cause 
naturally  restricts  the  citation  of  such  cases.  Indeed, 
even  an  approximate  estimate  of  their  extent  is  im- 
practicable. To  determine  it  would  require  an  exam- 
ination of  the  books  of  every  railway  in  tlie  land,  and 
a  full  statement  of  the  results  would  fill  a  librar}-.     It 


56  The  Railways  and  the  Bepublic. 

must  suffice  for  present  purposes  to  cite  instances  which 
show  that  discriminations  have  been  made  between  in- 
dividual shippers  by  the  officials  of  leading  railway 
corporations,  and  that  in  well-authenticated  cases  they 
have  been  burdensome  and  ruinous  in  their  character. 
To  prove  that  such  wanton  injustice  has  been  inflicted 
upon  individuals  by  men  who  still  hold  the  power  to 
repeat  the  wrong,  is  to  demonstrate  the  existence  of 
the  evil  and  to  show  the  necessity  of  a  radical  remedy. 
That  is  all  that  is  aimed  at  by  the  present  examina- 
tion of  the  subject. 

The  only  thorough  investigation  of  this  subject  by 
any  authority  having  the  power  to  compel  the  attend- 
ance of  witnesses,  and  to  order  the  j)roduction  of  books, 
was  that  made  in  New  York  by  the  Hepburn  Legis- 
lative Committee  five  years  ago.  Attempts  at  legis- 
lative investigation  have  been  made  in  other  states, 
resulting  in  a  few  disclosures;  but  none  of  them  has 
comprehensively  examined  the  entire  question.  The 
Hepburn  committee,  however,  pushed  its  inquiry  to 
the  fullest  extent,  and  the  testimony  taken  before  it 
on  the  subject  of  special  rates  granted  to  individual 
shippers  clearly  exposes  the  practice  of  the  two  lead- 
ing railways  traversing  that  state.  The  proof  in  these 
cases  was  the  unimpeachable  testimony  of  the  books 
of  the  New  York  Central  and  Erie  railways  them- 
selves; and  the  evidence  that  the  practice  was  custom- 
ary was  furnished  by  the  admissions  of  the  officials 
of  these  railways  before  the  committee.  It  would  be 
beyond  the  scope  of  this  Avork  to  summarize  the  cases 
of  individual  discrimination  presented  in  the  volumi- 
nous report  of  that  investigation.  We  can  give  but  a 
few  instances,  taken  at  random.     Transcripts  from  the 


Ten  Years  qf  Discrimination.  57 

records  of  the  Erie  Railway  showed  that  five  firms 
at  Biiighamton,  and  the  same  number  at  Elmira, 
obtained  special  rates  varying  from  five  eighths  to 
one  third  of  the  tariff  rate.  Special  rates,  affording  a 
decided  advantage  over  the  regular  tariff,  were  shown 
in  a  single  report  to  have  been  made  in  thirty-four 
cases  by  the  Erie  Railway,  while  a  similar  rejjort  as 
to  the  New  York  Central  gave  thirty-three  examples 
of  special  rates,  containing  such  noticeable  instances 
as  the  rate  of  9  cents  granted  to  three  dry-goods  firms 
of  Utica,  and  10  cents  to  another,  against  tarift"  rates 
of  33,  26,  and  22  cents,  on  first,  second,  and  third  class 
freights;  Avhile  the  same  rate  Avas  given  to  five  grocery 
firms  in  Syracuse,  which  was  no  slight  reduction  from 
the  regular  rate  of  37,  29,  25,  and  18  cents  on  the 
four  classes  of  freight.  Four  Rochester  grocery  firms 
got  sj^ecial  rates  of  13  cents  while  the  tariff  rates  were 
40,  30,  25,  and  20  cents.  The  discrimination  on  dry- 
goods  might  not  furnish  a  vital  factor  in  the  prosper- 
ity of  the  competing  firms  ;  but  the  wholesale  grocery 
firm  which  is  allowed  to  get  all  supplies  at  from  one 
third  to  one  half  the  rates  that  less  fjivored  firms  are 
obliged  to  pay,  obtains  an  advantage  which  in  the 
long  run  means  prosperity  to  it  and  ruin  to  its  rivals. 
A  summary  of  the  regular  and  special  rates  on  the 
New  York  Central  shows  special  rates  to  l)e  made  to 
individuals  at  twenty-two  points  along  its  line  be- 
tween Albany  and  Buftalo.  The  special  rates  at  some 
points  were  a  little  more  than  one  third  of  the  regular 
tariff,  while  at  Syracuse  the  extreme  of  discrimination 
occurred,  a  special  rate  being  made  of  one  fifth  of  the 
tariff  on  first-class  goods. 

Some  of  these  special  rates  showed  a  singular  disre- 


58  The  Railways  and  the  liepublic. 

gard  of  the  element  of  distance,  one  of  20  cents  being 
made  to  Little  Falls,  217  miles  from  New  York,  while 
that  made  to  Syracuse,  291  miles  away,  was  10  cents, 
and  that  to  Black  K-ock,  455  miles,  was  exactly  the 
same  as  to  Little  Falls.  These  special  rates  were 
generally  made  for  jobbers  or  large  dealers.*  The 
principle,  or  lack  of  principle,  on  which  they  were 
granted  was  explained  by  the  testimony  of  the  Assist- 
ant General  Freight  Agent  of  the  New  York  Central, 
whose  duty  it  is  to  make  such  rates  and  to  keep  a 
record  of  the  contracts.  He  testified  that  special  rates 
were  made  "  whenever  I  think  them  necessary."  The 
object  of  this  action,  according  to  the  testimony,  was 
"to  help  the  shippers,  as  many  of  them  could  not  live 
otherwise."  This  is  qualified  by  the  statement  that 
"  they  cannot  compete  with  western  manufacturers." 
From  the  same  source  we  learn  that  special  rates  are 
granted  to  certain  parties  "  on  the  understanding  that 
they  will  not  ship  by  canal."  The  practical  operation 
of  this  policy  is  shown  by  the  admission  of  this  witness 
that  one  large  manufacturer  of  cotton  cloth  is  charged 
20  cents  and  a  small  one  25  cents,  the  schedule  rate 
being  35  and  40  cents.  The  last  detail  of  the  manner 
in  which  a  leading  railway  makes  its  rates  tells  us, 
of  an  important  shipper,  that  he  had  not  the  same 
privilege  as  a  competitor  "  because  he  did  not  ask  for 

*  One  great  wrong  of  this  system  is  that  there  is  uo  unit  of  volume 
at  which  one  man  can  ship  as  clieaply  as  another.  Suppose  two  mer- 
chants at  A;  one  is  able  to  buy  one  car-load  of  goods  to  dispose  of  it  to 
his  customers ;  the  other  is  able  to  buy  ten  car-loads,  and  he  is  given  a 
difference  in  rate  equal  to  a  profit  in  handling  the  goods,  or  nearly  so. 
Result,  the  smaller  dealer  is  frozen  out.  This  supposititious  case  has  its 
actual  counterpart  all  along  the  line. — New  York  Committee's  Report^ 
p.G4. 


Ten  Years  of  Discrimination.  59 

it."  The  extent  to  ■which  this  manner  of  making 
railway  rates  has  been  carried  is  shown  by  the  fact 
that  the  books  of  the  New  York  Central  Eailway, 
exhibited  to  the  committee,  contained  over  six  thou- 
sand special  rates  granted  during  the  first  six  months 
of  1880. 

It  is  no  more  than  just  to  say  that  the  purpose  of 
these  multitudinous  and  inconsistent  special  rates  w^as 
stated  to  be  the  encouragement  of  local  shippers,  w^ho 
might  otherwise  be  oppressed  by  the  cheaper  rates  on 
through  traffic.  But  the  fatality  which  presides  over 
the  railway  policy  appeared  to  make  it  impossible  to 
cast  out  one  devil  without  calling  in  several  worse 
ones.  When  the  New  York  Central  attempted  to 
remedy  the  wrong  of  giving  through  shippers  lower 
rates  than  the  shippers  along  its  line,  it  fell  into  sev- 
eral other  wrongs,  in  its  discriminations  between  the 
favored  shippers  and  the  general  public;  in  its  dis- 
criminations between  the  various  classes  of  shippers, 
some  of  whom  got  10  cent  rates,  some  20,  and  some 
25 ;  in  its  dictation  to  shippers  that  they  should  not 
have  the  reduced  rates,  if  they  shipped  any  goods  by 
canal;  and  in  the  avowal  that  these  favors  are  granted 
as  a  matter  of  personal  solicitation  rather  than  as  a 
matter  of  public  equity  and  justice.*  There  could  be 
no  more  sisjnal  illustration  of  the  unsoundness  of  the 
prevailing  methods  of  railway  business  than  that  the 
means  which  were  taken  to  remove,  or,  rather,  relieve, 


*  He  who  goes  into  a  railroad  office  and  bargains  for  a  special  rate 
gets  it;  he  who,  relying  on  the  equitable  treatment  which  common  car- 
riers are  bound  to  give,  or  not  knowing  that  special  rates  may  be  had, 
delivers  them  his  goods  and  calls  for  his  freight  bill,  pays  a  higher  rate, 
— New  Y(/rh  Committee' 8  Ileport,  p.  GG. 


60  The  Railways  and  the  EepuUic. 

a  discrimination   against  locality  sliould  produce  six 
thousand  discriminations  as  between  individuals. 

Most  of  the  testimony  to  other  cases  of  preferential 
rates  between  shippers  is  less  direct  than  that  fur- 
nished by  the  New  York  investigation;  but  some 
important  ones  are  proved  beyond  question.  One 
instance,  showing  how  a  great  business  may  be  con- 
centrated in  the  hands  of  a  few  favorites  of  the  rail- 
way, was  disclosed  by  the  arguments  of  the  favored 
shippers  for  the  continuance  of  the  discrimination. 
For  some  years  past  one  of  the  industrial  phenomena 
of  Pennsylvania  has  been  the  gradual  consolidation 
of  the  coke  industry  of  that  state  in  the  hands  of  a 
few  powerful  firms.  The  control  by  these  firms  of  the 
entire  coke  trade  of  southwestern  Pennsylvania  could 
only  be  adequately  explained  by  railway  favoritism ; 
but  actual  knowledge  as  to  such  discriminations  was 
confined  to  the  railways  and  their  favorites.  At  the 
last  session  of  the  legislature,  however,  anions:  the 
opponents  of  a  bill  to  prevent  discriminations,  the 
representatives  of  these  firms  appeared,  and  argued 
that  it  was  necessary  for  them  to  have  the  discrimina- 
tions they  were  receiving,  in  order  to  compete  with 
coke  manufacturers  outside  of  the  state.  The  argu- 
ment prevailed  with  the  legislators,  who  -were  "willing 
to  listen  to  an}^  logic  that  the  railway  interest  chose 
to  advance;  but  two  facts  put  it  in  a  peculiar  light. 
The  first  is,  that  the  coke  production  outside  of 
Pennsylvania  is  unimportant,  nine  tenths  of  all  the 
coke  in  the  United  States  being  manufactured  in 
Pennsylvania;  the  second  is,  that  the  bill  had  no 
bearing  upon  discriminations  between  Pennsylvania 
shippers  and  those  outside  of  that  state,  but  provided 


Ten  Tears  of  Discrimination.  61 

only  that  rates  must  be  equal  as  between  Pennsylvania 
shippers.  In  opposing  it,  the  favored  firms  showed 
that  the  discriminations  they  wanted  were  against 
competitors  in  their  own  region;  and  that  it  was  such 
favoritism  as  the  bill  under  discussion  was  intended  to 
prevent,  that  had  enabled  them  to  secure  a  monopoly 
of  the  coke  industry,  only  inferior,  in  magnitude  and 
glaring  injustice,  to  the  petroleum  monopoly  and  the 
anthracite-coal  combination. 

Kindred  examples  of  individual  discrimination  have 
grown  out  of  the  control  of  the  bituminous  coal  trade 
by  the  railways  already  referred  to.'^  A  former  pro- 
prietor of  large  coal  interests  on  the  Baltimore  and  Ohio 
road  testified  before  an  investifratino;  committee  that, 
as  he  was  informed  by  the  General  Freight  Agent  of 
that  company,  an  agreement  had  been  made  with  the 
Pennsylvania  Railroad,  that  no  coal  from  the  region  of 
liis  mines  was  to  be  sold  between  Delaware  Bay  and 
Cape  Cod,  the  supplying  of  gas  coal  to  the  cities  be- 
tween those  points  being  reserved  to  the  Pennsylvania 
Railroad  and  West  Virginia  mines.  As  a  result  of 
this  agreement  the  rate  of  freight  on  a  large  contract 
which  this  operator  had  made,  to  furnisli  coal  to  the 
gas  works  in  New  York,  was  advanced  to  a  prohibitory 

*  These  appear,  for  the  most  i^art,  under  the  guise  of  discriminations 
against  localities,  by  establishing  rates  which  shut  out  the  coal-miuing 
firms  in  general  from  certain  localities.  One  phenomenal  case,  however, 
seems  on  its  face  to  be  a  most  wonderful  ilkistration  of  discrimination  in 
classification.  It  enacts  tliat,  on  coal  from  tlie  Pittsburgh  vein,  the  rate 
to  Philadelpliia  shall  be  $2.40  per  ton  if  it  is  to  be  used  for  steam-heat- 
ing ;  but  if  it  is  to  be  used  for  making  gas,  the  rate  shall  be  twice  as  much. 
The  reason  for  this  remarkable  rule  that  the  same  freight  shall  jjay  twice 
as  much,  if  it  is  to  be  used  for  one  purpose,  as  when  it  is  to  be  used  for 
another,  is  the  determination  of  the  railroad  to  preserve  a  monopoly  of 
supplying  gas  coal  in  the  hands  of  two  favored  mining  corporations. 


62  The  Railways  and  the  Rejpuhlic. 

point,  and  he  was  forced,  at  a  loss  of  alDOiit  one  dollar 
per  ton,  to  pnrcliase  coal  of  the  Westmoreland  mines, 
which  were  favored  in  the  rates.  This  partakes  largely 
of  the  character  of  a  discrimination  in  locality ;  but  its 
bearing  as  a  case  of  individual  discrimination  may  be 
seen  in  the  fact  that  the  unfortunate  mine-owner  was 
forced  into  bankruptcy,  and  that,  at  the  sale  of  his 
mining  property  under  legal  jorocess,  it  was  purchased 
by  a  prominent  director  of  a  third  trunk-line  railway, 
who  has,  as  far  as  can  be  learned,  experienced  no  in- 
superable difficulties  since  then  in  getting  the  coal 
from  that  mine  into  market. 

There  has  probably  never  been  a  bolder  assertion 
of  the  power  to  make  individual  discriminations  than 
that  of  the  Central  Pacific  Railway  in  two  of  its  prac- 
tices which,  besides  being  matter  of  common  notoriety, 
were  testified  to  before  a  legislative  committee  of 
California.  One  is  the  practice  of  granting  special 
rates  only  to  those  who  will  bind  themselves  to  ship 
nothing  by  sea.  This  dictation  to  the  shi2:)per  of  the 
routes  for  the  transportation  of  his  goods,  means  sim- 
ply that  if  he  does  not  transact  his  business  according 
to  the  methods  prescribed  by  the  monopoly  which 
controls  land  transportation,  he  shall  be  shut  out  from 
equal  terms  in  railway  freights.  The  rigor  with  which 
that  rule  has  been  enforced  in  California,  and  with 
which  the  Central  Pacific  has  pursued  its  policy  of 
buying  up  or  bringing  competing  roads  to  an  agree- 
ment sustaining  that  perfection  of  tyranny,  is  a  matter 
of  railway  history,  and  forms  perhaps  the  most  striking 
of  the  many  glaring  forms  of  injustice  that  have  been 
perpetrated  by  the  public  beneficiary  which  monopo- 
lizes the  freic^hting^  business  of  California.     The  other 


Ten  Years  of  Discrimination.  63 

practice  is  that  extreme  development  of  the  principle 
of  "charging  what  the  freight  will  bear,"  by  which  every 
shipper  of  silver  ore  over  the  Central  Pacific  is  required 
to  furnish  an  assay  of  his  ore,  and  to  accept  a  rate  of 
freight  in  accordance  with  its  value.  There  may  be  a 
strict  impartiality  in  this  practice  of  confiscating  the 
extra  value  of  the  product  of  the  mines  which  may  be 
fortunate  or  unfortunate  enough  to  yield  rich  minerals. 
I  have  no  knowledge  as  to  whether  that  remarkable 
practice  is  consistently  carried  out;  but  the  assertion 
of  the  right  to  make  a  special  rate  for  each  mine,  and  to 
charge  one  mine  twice  as  much  as  another  for  exactly 
the  same  service,  savors  too  strongly  of  arbitrary  and 
unchecked  absolutism  to  pass  unchallenged. 

A  notorious  case  of  individual  discrimination  arose 
under  the  operation  of  the  trunk-line  pool  on  live- 
stock, in  the  rebate  given  to  the  Chicago  "eveners." 
Between  1875  and  1879,  the  trunk  lines  carrying  live- 
stock from  Chicago  to  the  East  paid  a  single  firm  a 
rebate  of  $15  on  every  car  of  live-stock  shipped  to  the 
East.  The  consideration  for  which  this  favor  was 
granted  was  that  the  firm  undertook  to  "  even  up  "  the 
percentages  of  the  various  lines  forming  the  live-stock 
pool ;  that  is,  if  one  road  obtained,  under  the  ordinary 
workings  of  the  pool,  less  than  its  allotted  percentages 
of  the  traffic,  the  firm  was  to  ship  enough  stock  over 
its  line  to  restore  the  balance.  A  concern  with  an  as- 
sured advantage  over  all  competitors  of  $15  per  car,  on 
a  business  of  some  hundreds  of  cars  a  week,  might  well 
undertake  to  perform  this  service.  It  is  clearly  shown 
that  this  firm,  for  a  long  time,  enjoyed  an  advantage 
over  its  competitors  that  no  energy  or  economy  of 
theirs  could  overcome.     If  the  trade  was  prosperous 


64  The  Railways  and  the  Republic. 

the  favored  firm  made  $15  per  car  more  than  its  rivals; 
if  the  trade  was  unprofitable,  it  lost  $15  per  car  less 
than  they.  Not  only  so,  but  it  had  the  enormous  ad- 
vantage of  collecting  the  same  tax  on  every  car  of  live- 
stock that  was  shipped  by  its  rivals.  It  received  from 
the  railways  not  only  an  advantage  in  freights  equal 
to  an  ordinary  business  profit  on  all  the  live-stock  that 
it  could  ship,  but  an  income  from  all  the  business  that 
its  rivals  could  transact."'^  In  short,  it  Avas  assured  by 
the  combined  power  of  the  trunk-line  pool  an  advantage 
which  in  the  course  of  a  year  or  t^vo  would  guarantee 
it  great  wealth ;  and,  on  the  most  charitable  explana- 
tion of  the  agreement,  that  wealth  was  given  to  it  by 
the  railways  out  of  the  higher  rates  which  they  were 
enabled  to  levy  on  its  competitors  by  the  pooling 
combination,  of  which  it  acted  as  an  agent.  It  is  to 
the  credit  of  the  trunk-line  pool  that  it  abolished 
this  outrage  upon  justice  and  travesty  upon  business 
principles  in  1879;  but  not  until  this  profitable  royal- 
ty upon  the  live-stock  transactions  of  the  country  had 
raised  the  fiivored  firm  to  a  commanding  place  in  that 
trade. 

Further  instances  of  preferential  rates  might  be  in- 
dicated ;  but  the  proof  of  their  existence  is  generally 
of  an  indirect  character.  The  clearest  proof  that  such 
inequalities  are  general  is  the  common  understanding 
of  shippers  that  the  cost  of  transporting  freight  de- 
pends entirely  on  the  special  rate  that  each  shipper 

*  This  feature  of  the  discrimination  would  seem  almost  incredible  if  it 
had  not  a  parallel  in  the  petroleum  trade,  and  if  it  were  not  established 
by  the  testimony  before  the  New  York  Committee.  (See  pages  69  and  70 
of  that  report.)  It  should  be  said  that  the  rebate  or  commission  was  re- 
duced to  $10  per  car,  before  the  abolition  of  the  practice. 


Ten  Years  of  Discrimination.  65 

can  c-et.  A  friend  who  is  ensraGied  in  the  iron- ore 
trade,  when  asked  the  rate  on  ore  from  Lake  Erie  to 
the  iron  works  of  Pittsburo-h  and  the  Mahoniuoi:  Val- 
ley,  some  months  ago,  replied :  "  Oh,  the  open  rate  is 
$1.50  a  ton,  but  everybody  gets  a  special  rate,  and  it 
all  depends  on  that."  In  this  case,  as  there  are  three 
railways  competing  for  the  business,  it  may  be  taken 
for  granted  that  if  a  shipper  cannot  get  a  good  special 
rate  from  one  company  he  can  from  another;  and  it  is 
probable  that  the  competition  reduces  the  varions  spe- 
cial rates  to  a  practical  equality,  except,  it  may  be,  in 
the  case  of  those  whose  relations  with  railway  officials 
enable  them  to  get  their  freight  carried  at  less  than 
cost.  But  the  method  is  vicious,  in  its  assertion  of  the 
right  to  give  different  rates  to  one  shipper  and  to  the 
public  at  large  on  similar  business;  and  in  cases  where 
there  is  no  competition  to  limit  and  regulate  such  dis- 
crimination, the  shipping  public  is  utterly  at  the  mercy 
of  the  railwa3"s. 

The  cases  of  individual  discrimination  cited  in  the 
practices  of  the  New  York  roads,  of  the  coal-carrying 
railways  of  Pennsylvania,  of  the  Central  Pacific  Kail- 
way  in  its  special  contracts,  and  of  the  live-stock 
business,  do  not  prove  that  the  railways  commonly 
and  deliberately  favor  one  shij^tper  at  the  expense  of 
others.  But  at  least  two  of  these  instances  involve 
this  nefarious  abuse;  while  the  fact  already  referred 
to,  that  such  favors  are  always  secretly  granted,  ren- 
ders it  practically  impossible  to  produce  instances  in 
such  profusion  as  to  demonstrate  the  general  prevalence 
of  the  evil.  Enough  has  been  said  to  show,  however, 
that  the  leading  railways  make  a  practice  of  granting 
special  rates;  and  that  this  practice  is  the  exercise  of 

5 


66  The  Railways  and  the  Republic. 

a  power  by  wbicli  they  can  secure  to  any  shipper  a 
monopoly  in  any  line  of  business  in  which  the  freight 
charcres  form  a  vital  element  of  cost.  When  that  evi- 
clence  is  reinforced  by  the  history  of  a  notorious  in- 
stance of  this  discrimination  in  its  worst  form,  which 
has  defied  public  opinion  and  overridden  public  justice, 
the  case  may  be  considered  as  closed.  The  history  of 
the  manner  in  which,  by  the  power  of  railway  dis- 
crimination, an  immense  monopoly  was  built  upon  the 
ruins  of  a  thriving  industry ;  of  the  persistent  and  un- 
scrupulous methods  by  which  the  favored  corporation 
was  raised  to  unexampled  power  and  wealth ;  and  of 
the  ^vide-spread  demoralization  and  disaster  wrought 
by  this  policy,  requires  a  chapter  by  itself.  When 
that  is  given,  the  demonstration,  not  only  that  the  rail- 
ways have  the  power  arbitrarily  to  deal  out  prosperit)" 
to  their  ftivored  shippers,  and  adversity  to  those  whom 
they  regard  unfavorably,  but  that  they  have  exerted 
that  power  unscrupulously  and  persistentty,  against 
public  protest  and  without  regard  to  public  justice, 
will  be  complete. 


CHAPTER  HI. 

THE   HISTORY    OF    A    COMMERCIAL   CRIME. 

Victor  Hugo  tells  the  story  of  the  beti'ayal  of 
popular  riglits  and  of  the  erection  of  an  absolute,  cor- 
rupt, and  sycophantic  empire,  on  the  ruins  of  represen- 
tative government,  and  calls  it  "The  History  of  a 
Crime."  In  describino;  an  assault  on  commercial  lib- 
erty  as  successful  as  that  of  Louis  Napoleon  upon 
political  liberty,  prosecuted  by  methods  as  unscrupu- 
Lus  as  his,  and  the  establishment,  on  the  ruins  of  in- 
dependent industries,  of  a  commercial  absolutism  as 
merciless  and  corrupt  as  was  the  political  absolutism 
of  the  Second  Empire,  it  seems  jieculiarly  appropriate, 
adapting  Victor  Hugo's  phrase,  to  entitle  the  account, 
"  The  History  of  a  Commercial  Crime."  The  Standard 
Oil  Company,  indeed,  embodies  the  commercial  crimes 
of  the  past  decade.  Its  vast  wealth  has  been  accumu- 
lated in  less  than  fifteen  years,  by  speculative  manipu- 
lations, by  bribing  legislators,  and  by  distorting  law 
to  deny  to  one  man  the  privileges  given  to  another. 
Its  history  illustrates,  step  by  step,  the  extent  to  which 
tlie  greed  for  wealth  can  corrupt  commercial  moralit}', 
pervert  law,  and  betray  the  interests  intrusted  to  its 
pi-otection.  The  methods  by  which  this  company  ac- 
quired its  power,  and  those  by  which  it  exercises  that 
power,  from  its  greatest  operation  to  the  selling  of  a 
single  barrel  of  oil,  sllo^v  the  baneful  results  of  per- 


68  The  Railways  and  the  Eepuhlic. 

mitting  the  exclusive  control  of  a  great  commercial  in- 
terest to  be  vested  in  a  monopoly  which  can  oppress 
the  consumer  or  the  jiroducer  alike.  Throughout  the 
course  of  intimidatiou,  corruption,  defiance  of  commer- 
cial and  statute  law,  and  contempt  of  public  justice 
that  marks  the  rise  of  the  Standard  monopoly,  one  fact 
is  pre-eminent:  This  monopoly  was  called  into  existence 
and  sustained  in  its  most  odious  tyranny  by  the  per- 
sistent and  deliberate  discriminations  of  the  railways 
in  its  favor.  Not  only  the  $100,000,000  which  that 
corporation  has  gathered  out  of  the  oil  trade  in  the 
last  fifteen  years,  but  its  dictatorial  power,  its  unscru- 
pulous crushing  of  opposition,  its  corruption  of  public 
servants,  its  control  of  the  speculative  features  of  the 
business,  and  the  favoritism  and  sycophancy  which  are 
essential  accompaniments  of  its  absolutism,  are  the  di- 
rect results  of  the  advantages  which  the  leading  rail- 
ways of  the  country  gave  it,  l)y  carrying  its  freights  on 
terms  which  rendered  competition  practically  impossi- 
ble. So  that  while  greed,  dishonesty,  speculative  com- 
binations, and  disregard  of  private  and  public  rights 
are  all  represented  in  that  aggregation  of  wealth  and 
injustice,  it  is  signally  the  embodiment  of  the  gigantic 
wrongs  which  the  railways  can  inflict  and  have  in- 
flicted through  the  power  of  discrimination. 

In  its  inception  as  a  corporation  for  the  refining  of 
petroleum,  the  Standard  Oil  Company,  formed  at 
Cleveland,  Ohio,  some  fifteen  years  ago  under  a  char- 
ter from  the  State  of  Ohio,  was  not  essentially  diflereut 
from  its  two-score  of  competitors  in  the  same  business. 
Its  capital  was  $300,000,  enough  to  give  it  a  leading 
but  not  a  commanding  position  in  the  ti'ade,  there 
being  many  other  refiners  of  equal  or  even  superior 


The  History  of  a  Commercial  Crime.  69 

wealth.  But  it  was  controlled  by  men  who  perceived 
how  one  refining  company  might  be  made  master  of 
the  trade  by  combining  tlie  railways,  and  by  binding 
them  to  its  interests  with  indissoluble  ties.  No  doubt 
refiners  as  well  as  other  business  men  had  long  before 
discerned  the  advantages  to  be  gained  by  securing  the 
favor  of  a  railway  line,  and  obtaining  special  rates  for 
transporting  crude  petroleum  from  the  oil  regions  to 
the  refineries,  and  the  refined  product  to  the  seaboard 
or  interior  markets.  But  it  is  generally  believed  that 
the  mind  of  John  D.  Rockafeller  first  comprehended 
the  value  of  a  scheme  to  unite  the  favors  of  all  the 
railways  upon  his  company.  His  conception  first  took 
form  in  the  famous  "South  Improvement  Company," 
an  organization  for  the  avowed  purpose  of  controlling 
the  freiijht  business  of  the  oil  res-ions.  It  induced  the 
three  principal  trunk-lines  then  engaged  in  carrying 
oil  to  give  it,  under  a  secret  contract,  rebates  ranging 
from  40  cents  to  $3.07  per  barrel,  and  was  guaranteed 
"against  loss  or  injury  by  competition."  In  return 
for  this  favor  it  was  to  insure  the  railways  a  fair  divis- 
ion of  the  freight  traffic  of  the  oil  trade.  The  contract 
provided  also  that  it  should  receive  a  rebate  on  all  oil 
carried  for  other  parties,  which,  as  no  one  else  could 
ship  oil,  in  competition  with  such  a  favored  shipper, 
appears  to  be  supererogatory.  The  contract  was  signed 
by  the  South  Improvement  Company,  on  the  one  hand, 
and  by  the  Pennsylvania,  the  Erie,  and  the  New  York 
Central  trunk  lines  on  the  other  hand.  The  prema- 
ture publication  of  the  scheme  proved  its  ruin.  The 
oil  producers  of  that  day  were  an  independent  class  of 
men,  and  were  not  disposed  to  seek  the  thrift  that 
would  follow  judicious  fawning.     A  storm  such  as  has 


70  The  Railways  and  the  Rejpvhlic. 

never  been  known  before  or  since,  in  connection  with 
commercial  questions,  arose  tlironghout  the  oil  regions. 
Public  meetings,  from  one  end  of  the  district  to  the 
other,  thundered  out  defiance.  Rather  than  submit  to 
the  yoke  of  the  South  Improvement  Company,  they 
would  burn  every  tank  and  raze  every  derrick  in  the 
oil  regions.  Whether  or  not  the  threat  would  have 
been  carried  out,  it  showed  the  railways  such  a  spirit 
as  would  create  other  means  of  transportation  if  the 
South  Improvement  project  were  persisted  in.  The 
attempt  to  create  a  monopoly  fell,  therefore,  before  the 
popular  clamor. 

But  the  idea  remained.  The  ingenious  and  persis- 
tent mind  which  had  conceived  the  South  Improve- 
ment scheme  perceived  that  the  work  must  be  carried 
out  gradually,  and  a  control  obtained,  step  by  step, 
over  the  railways  and  the  petroleum  trade  alike  that 
would  defy  public  opinion.  It  would  be  interesting, 
as  a  psychological  study,  to  know  wdiether  the  concep- 
tion from  w^hich  the  Standard  project  sprang  included 
at  first  the  crushing  out  of  all  rivalry,  and  the  control 
of  the  markets,  which  it  finally  attained ;  *  or  whether 


*  A  story  sometimes  heard,  iu  the  under-cun"ents  of  trade  gossip,  tells 
how  the  originator  of  this  scheme  presented  himself  at  a  meeting  of  bank 
directors  in  Cleveland,  and  demanded  an  advance  of  hundreds  of  thou- 
sands of  dollars.  Being  asked  what  security  lie  offered  for  so  large  a  loan, 
he  replied  that  his  security  was  simply  a  monoi^oly  of  the  petroleum 
trade,  and  presented  such  evidences  of  his  ability  to  obtain  that  monopoly 
that  the  bank  directors  were  convinced,  and  furnished  him  the  sinews  of 
v.ar  for  his  career  of  conquest.  The  story  is  not  authenticated,  and  is, 
perhaps,  a  rather  skilfully  drawn  bit  of  ex-post-facto  fiction.  Bnt  it  is 
interesting  as  illustrating  the  recognition  of  the  fact  in  business  circles 
that  the  means  adopted  to  give  the  Standard  Oil  Company  success  at 
the  outset  of  its  career  were  well  calculated  to  insure  it  the  final  attain- 
ment of  its  subsequent  monopoly. 


The  nistory  of  a  Commercial  Crime.  71 

it  only  sought  the  advantages  immediately  in  view, 
and  thence  was  led  on  from  one  point  to  another,  for 
the  maintenance  and  extension  of  its  power.  It  is 
probable  that  the  genius  that  inspired  it  saw  at  first 
only  the  prizes  directly  before  it;  but  as  Napoleon  at 
the  Bridge  of  Lodi  foresaw  his  conquest  of  Europe,  it 
is  possible  that  this  Napoleon  of  the  petroleum  trade 
felt  in  the  opening  of  his  career  an  ambition  propor- 
tionately as  inordinate  as  that  of  his  prototype.  No 
matter  whether  or  not  the  end  was  seen  from  the  be- 
ginning; the  methods  used  were  such  as  both  achieved 
immediate  gain  and  laid  the  foundations  of  the  im- 
mense monopoly  afterwards  established,  without  excit- 
ing the  public  alarm. 

No  less  interestino:  would  be  a  full  knowledge  of 
the  methods  by  which  the  railways  were  first  bound 
to  the  Standard  scheme.  But  no  evidence  attainable 
by  the  public  exists  on  that  point,  and  the  matter 
must  be  left  to  conjecture.  The  ability  to  employ 
lake  transportation  on  a  large  share  of  its  shipments 
from  Cleveland  has  been  alleged  as  the  first  considera- 
tion by  which  the  Standard  obtained  its  vital  advan- 
tages in  rates.  This  is  a  sufficient  explanation  of 
lower  rates  at  Cleveland  than  elsewhere,  but  does  not 
afford  any  ground  for  the  preference  given  to  the 
Standard  over  its  rivals  at  that  point.  The  fact  that, 
ever  since  then,  the  support  given  by  the  New  York 
Central  and  Erie  lines  to  the  Standard's  monopoly  of 
the  refining  trade  has  been  unwavering,  while  the 
Pennsylvania  Bailroad  has  at  times  in  intervening 
years  made  vigorous  efforts  to  throw  off  the  yoke,  may 
be  taken  as  an  evidence  that  the  ties  which  connected 
the  two  former  roads  to  the  scheme  were  closer  and 


72  The  Railways  and  the  Eejpiiblic. 

more  firmly  knit  than  those  of  the  latter.  It  is  possi- 
ble that  the  Standard  manas-ers  at  the  start  relied  on 
the  universal  rule  of  the  railways  to  give  the  lowest 
rates  at  competitive  points,  to  insure  that  the  Pennsyl- 
vania Kailroad  Avould  maintain  their  advantacje  at 
Cleveland  over  their  Pittsburgh  rivals.  The  main  fact 
that  is  public  property  is,  that  by  the  summer  of 
1874  the  railways  were  fully  committed  to  the  inter- 
est of  the  Standard.  The  majority  of  the  refineries  in 
Clev^eland  were  either  consolidated  under  the  charter 
of  the  leading  corporation  or  leased  to  it  for  a  term  of 
years.  Near  the  opening  of  its  career,  too,  the  Stand- 
ard obtained  a  controlling  interest  in  the  United  Pipe- 
Lines  Company,  already  the  main  transportation  com- 
pany for  conveying  oil  in  pipes  from  the  wells  to  the 
railways,  and  which  subsequently  obtained  absolute 
control  of  that  business.  The  result  of  these  combi- 
nations became  manifest  in  1874,  affecting  the  relative 
positions  of  the  rival  refining  interests  in  the  market 
for  exporting  refined  petroleum  from  the  seaboard. 

On  October  1, 1874,  the  railways  established  the  rate 
of  $1.90  per  barrel  to  New  York  *  for  all  refineries, 
whether  located  in  Pittsburgh,  Cleveland,  or  the  oil 
regions.  This  rate  affords  a  marked  illustration  of 
the  ingenuity  with  which  railway  rates  can  be  made  to 
oppress  legitimate  and  independent  industry.  Apart 
from  the  question  whether  the  same  charge  was  really 
made  to  the  Standard  and  other  refineries,  it  utterly 
discarded  the  element  of  distance  in  the  cost  of  service. 
The  Pittsburgh  refineries,  which  required  a  liaul  of  60 
to  75  miles  for  the  crude  oil  from  the  wells,  and  of  350 

*  New  York  Investigating  Committee's  Report,  p.  42 ;  testimony,  p. 
3417. 


The  Histor])  of  a  Commercial  Crime.  73 

miles  for  tbeir  refiued  product  from  the  refineries  to 
tlie  nearest  point  of  export,  were  deprived  of  their 
leo-itiraate  advantao-e  over  the  Standard  refineries  at 
Cleveland,  which  required  a  haul  of  about  250  miles 
farther.  This  was  asserted  to  be  for  the  avoidance  of 
discrimination;  but  it  was  nothing  but  a  defiance  of 
the  principle  that  like  chai'ges  should  be  made  for  like 
service.  It  was  equivalent  to  declaring  that  industries 
located  where  they  can  be  carried  on  most  economi- 
cally shall  be  deprived  of  the  legitimate  benefit  of  the 
foresight  which  placed  them  there,  and  reduced  to  au 
equality  with  those  improvidently  built  where  they 
require  extra  and  unnecessary  transportation.  It  de- 
nied to  the  public  the  cheapness  in  its  staples  which 
comes  of  producing  them  where  they  can  be  most  eco- 
nomically produced.  In  principle  the  railways  might 
as  w*ell  have  claimed  that  it  would  be  just  to  carry 
the  crude  oil  from  the  Pennsylvania  wells  to  a  refinery 
in  the  Rocky  Mountains,  and  thence  back  to  the  sea- 
board, at  the  same  rate  as  to  the  Pennsylvania  refiner- 
ies. If  the  same  rate  had  been  charfred  to  the  Stand- 
ard  and  to  its  Pittsburgh  rivals  it  would  have  been 
a  discrimination  against  the  latter.  But  the  fact  soon 
became  apparent  that  the  Standard  i-efineries  obtained 
further  advantages  which  enabled  them  to  undersell 
their  competitors  in  the  export  markets.  The  establish- 
ment of  the  new  rate  Avas  a  virtual  prohibition  upon 
exports  from  the  Pittsburgh  refineries,  and  they  were 
confined  to  the  supply  of  the  interior  trade,  which  ab- 
sorbed a  me]'e  fraction  of  their  previous  product,  until 
they  could  devise  some  means  of  relief  The  plan  for 
relief  was  found  in  the  project  to  lay  a  pipe  line  from 
the  oil  regions  to  Pittsburgh.      To  understand   this 


74:  The  Railways  and  the  Republic. 

project  it  must  be  stated  that  the  rates  were  so  levied 
that  all  crude  oil  l>rou2;ht  to  the  Pittsburo-h  refineries 
by  the  Allegheny  Valley  Railroad  must,  when  refined, 
be  taken  East  over  the  Pennsylvania  Kailroad.  That 
is  to  say,  a  single  rate  was  charged  as  a  whole  from 
the  oil  regions  to  the  seaboard;  and  the  Pittsburgh 
refiner  was  required  to  pay  the  entire  rate,  even  if  he 
shipped  his  refined  oil  by  another  route.  The  object 
of  this  device  was  to  prevent  the  Baltimore  and  Ohio's 
line  to  Pittsburgh  from  competing  for  the  oil  traffic. 
If  an  independent  pipe  line  could  be  put  into  opera- 
tion, the  Pittsburgh  refineries  could  receive  their  crude 
oil  by  that  line,  and  the  Baltimore  and  Ohio  could 
compete  for  the  transportation  of  the  refined  prod- 
uct. This  would  not  only  put  the  Pittsburgh  re- 
finers on  an  equal  footing,  but  would  give  them  an  un- 
doubted advantao-e.  It  was  believed  that  the  savins: 
on  the  transportation  of  crude  oil  to  the  refineries 
would  be  two  thirds  of  the  prevailing  rate;  while  the 
additional  saving,  by  the  shorter  haul  from  Pittsburgh 
to  the  seaboard,  would  make  that  city  the  refining  cen- 
tre of  the  country  instead  of  Cleveland.  The  project 
took  sha2:)e  in  the  Columbia  Conduit  Company,  which 
began  in  that  year  to  lay  its  pipes  from  the  oil  wells 
to  the  Pittsburgh  refineries. 

That  the  estimate  of  the  high  importance  of  this 
measure  in  sustaining  competition  was  not  confined  to 
its  supporters  is  demonstrated  by  the  steps  which  the 
Standard  and  the  railways  took  to  defeat  it.  The  laws 
of  Pennsylvania  at  that  time  aflforded  them  a  means  of 
opposition  which  they  used  to  the  utmost.  These  laws 
gave  to  pipe  lines  in  the  petroleum-producing  counties 
the  power  to  appropriate  the  right  of  way  for  their 


The  History  of  a  Commercial  Crime.  75 

pipes,  just  as  the  railways  do  under  the  eminent  domain 
of  the  state.  But  this  power  was  confined  to  the  oil- 
producing  regions,  so  that  the  right  of  way  to  Pitts- 
burgh could  only  be  obtained  by  purchase,  without  the 
aid  of  the  state's  eminent  domain.  Xo  difficulty  was 
experienced  in  obtaining  the  consent  of  property  own- 
ers to  bury  pipes  under  their  fields.  The  new  line  was 
laid  without  opposition  until  it  reached  the  north  bank 
of  the  Allegheny  River,  where,  within  sight  of  the  Pitts- 
burgh refineries,  the  Pennsylvania  Railroad,  which  had 
a  branch  running  along  that  river,  forbade  the  laying  of 
the  pipes  under  its  track.  An  appeal  to  the  legislature, 
to  extend  the  right  to  appropriate  property  by  legal 
process,  already  granted  to  pipe  lines  in  the  producing 
counties,  was  the  next  step.  This  was  met  by  the  com- 
bined force  of  the  Pennsylvania  Railroad  and  a  lobby 
which  was  notoriously  at  the  service  of  the  heaviest 
purse.  To  afford  a  fair  excuse  for  the  defeat  of  a  meas- 
ure which  was  required  by  the  material  interests  of  the 
state,  it  became  necessary  for  the  Standard  to  divide 
the  Pittsburgh  interests.  A  leading  firm  of  that  city, 
whose  senior  member  had  publicly  avowed  his  support 
of  the  free  pipe  bill,  was  admitted  to  the  Standard  cor- 
poration, and  he  reversed  his  position  and  declared 
as^ainst  the  bill.  This  extension  of  the  Standard  in- 
terests  to  Pittsburgh  was  followed  up  by  the  purchase 
and  lease  of  other  establishments,  until  enough  Pitts- 
burgh refiners  were  induced  to  oppose  the  bill  for 
equality  in  pipe-line  transportation  to  afford  a  ])retext 
for  killing  the  bill. 

But  by  this  time  the  Columbia  Conduit  Company 
had  devised  a  method  of  partly  overcoming  the  ob- 
stacle.   While  the  railroad  could  prevent  the  pipe  line 


76  The  Railways  and  the  BejpuUic. 

from  going  under  or  over  its  tracks,  it  could  not  hinder 
the  passage  of  wagous  over  its  tracks  upon  the  public 
road.  So  the  pipe  line  was  brought  up  to  the  track, 
■within  a  few  feet  of  the  public-road  crossing.  On  the 
other  side  of  the  track,  only  a  few  feet  away,  was  the 
end  of  a  pipe  which  connected  with  the  Pittsburgh  refin- 
eries. Oil  tanks  mounted  on  ^vheels  were  filled  from 
the  pipes  on  the  north  side  of  the  railway,  driven  across 
the  track  by  the  public  crossing,  and  discharged  into 
the  pipes  on  the  south  side,  to  be  conveyed  to  tlie  re- 
fineries a  few  miles  away.  For  many  months  the  wag- 
ons hauled  their  loads  of  oil  over  the  AYest  Pennsyl- 
vania tracks,  to  avoid  the  obstacle  presented  by  the  legal 
rights  of  that  corporation.  Finally — probably  because 
the  pipe  method  was  really  safer  and  less  liable  to  ac- 
cidents which  might  be  expensive  to  the  railway — the 
latter  consented  to  allow  the  pipes  to  be  laid  under 
the  tracks  and  the  complete  pipe-line  connection  to  be 
made  with  Pittsburgh.  Perhaps  also  the  railway  man- 
agers believed  that,  under  new  combinations  soon  to  be 
formed,  the  value  of  the  pipe  line  as  an  independent 
route  would  be  nearly  destroyed. 

The  interests  of  the  Standard  Oil  Company  now  re- 
quired it  to  attach  the  Baltimore  and  Ohio  Railroad  to 
the  combination,  instead  of  leaving  it  to  maintain  an 
independent  route  for  the  Pittsburgh  refiners.  The  dis- 
criminations of  the  other  trunk  lines  were  maintained,  so 
that  no  independent  Pittsburgh  refining  firm  could  ship 
oil  to  the  seaboard  by  the  Pennsylvania  Eailroad  at 
its  regular  rates,  and  sell  it  there  in  competition  with 
the  Standard,  which  continued  to  move  petroleum  in 
large  volumes  over  that  road  at  whatever  the  secret 
rates  may  have  been.     But  though  the  Baltimore  and 


The  History  of  a  Commercial  Crime.  77 

Ohio  road,  while  used  as  a  competing  line  by  the  inde- 
pendent refiners,  had  its  economy  materially  impaired 
by  expensive  transfers  between  the  refineries  and  the 
shipping-point,  yet  it  enabled  these  refiners  to  enter  the 
seaboard  market  on  nearly  equal  terms  with  the  Stand- 
ard, and  to  keep  up  the  fight  for  existence  with  a  fair 
degree  of  success.  The  policy  by  which  the  Pittsburgli 
refineries  wei'e  forced  into  decay  is  illustrated  by  the 
fact  that  previous  to  1874,  and  at  periods  in  1875  and 
1877,  whenever  they  enjoyed  any  approximation  to 
open  competition  among  the  railways  for  their  freights, 
their  business  was  active  and  expanding. 

To  prevent  the  independent  refiners  of  Pittsburgh 
from  maintaininfj  their  trade  ascainst  the  combined 
power  of  the  Standard  and  the  three  other  trunk  lines, 
the  alliance  of  the  Baltimore  and  Ohio  Railroad  became 
necessary.  The  termination  of  a  railway  freight  war 
which  had  been  waged  for  some  time  between  the 
trunk  lines,  in  a  general  treaty,  afforded  an  opportunity 
to  attach  the  Baltimore  and  Ohio  Railroad  to  the  com- 
bination. Heretofore  this  road  had  been,  in  the  oil 
trade,  a  competitor,  and  a  supporter  of  independent 
competition.  Thereafter  it  assumed  the  character  of  a 
weathercock,  at  one  time  throwing  its  power  on  the 
side  of  the  Standard,  and  at  another  breaking  away, 
because  its  share  of  the  spoils  was  not  large  enough. 
In  this  case  it  was  reported  that  a  concession  to  it  of  a 
percentage  in  the  live-stock  trafiic  from  Chicago,  and 
of  a  differential  rate  on  grain  to  Baltimore,  less  by  four 
cents  tlian  to  New  York,  formed  the  consideration  for 
which  it  ao-reed  to  desert  the  Pittsburrdi  refiners  and 
join  the  other  trunk  lines.  The  ties  of  the  other  three 
companies  to  the  Standard  were  by  this  time  so  strong 


78  The  Railways  and  the  Eepublic. 

that  they  were  ready  to  make  large  concessions  on 
other  questions  to  secure  the  dominion  of  their  darling 
monopoly.  The  compact  was  made,  and  the  rate  on 
petroleum  from  the  pipe  lines  to  the  seaboard,  over 
whatever  distance  the  shipments  were  carried,  was 
fixed  at  $1.15.  Apart  from  the  persistent  injustice 
already  referred  to,  of  ignoring  the  element  of  distance 
in  the  charges,  this  rate  ^vas  not  excessive  for  the  trans- 
portation of  petroleum.  Although  deprived  of  their 
advantage  in  location,  the  independent  refiners  could 
have  kept  up  their  competition  if  the  rate  had  been 
charged  equally  to  all  refiners.  It  was  alleged  at  the 
time  that  this  rate  was  charged  on  the  Standard  ship- 
ments; but  nobody  believed  this,  and  nobody  was 
expected  to.  For,  within  a  few  weeks  of  the  promul- 
gation of  this  rate,  the  Standard  was  selling  oil  in  the 
Eastern  markets  at  less  than  the  first  cost  at  the  refin- 
eries, with  the  open  freight  rate  added.  The  discrim- 
ination was  known  to  be  large  in  amount,  but  its  exact 
character  was  not  known.  It  has  since  then  been  ex- 
plained by  the  discovery  of  tlie  New  York  Investigat- 
ing Committee  *  that,  on  August  1, 1875,  the  New  York 
Central  and  Erie  railroads  contracted  to  give  the 
Standard  a  rate  as  low  as  the  lowest  net  rate  to  other 
parties,  and,  besides,  to  pay  the  Standard  and  its  affili- 
ated companies  a  rebate  of  ten  per  cent,  on  all  ship- 
ments of  oil.  The  ''  afiiliated  companies  "  were  those 
which  the  Standard  had  admitted  to  its  combination  as 
a  reward  for  their  aid  in  defeating  legislation  in  behalf 
of  free  competition ;  and  the  correspondence  of  the 
Standard  and  the  Pennsylvania  Railroad  in  1877 
showed  that  the  ten  per  cent,  rebate  on  all  shipments 

*  New  York  Investigation,  Exhibits,  pp.  175,  183. 


The  History  of  a  Commercial  Crime.  '79 

of  oil  included  not  only  a  special  lowering  of  the 
Standard's  rate,  but  a  tax  on  all  the  oil  which  their 
rivals  might  ship.  By  such  means  as  this  the  indepen- 
dent refiners  were  again  shut  out  of  the  market.  Even 
in  supplying  the  domestic  trade,  it  was  found  that  the 
Standard  could  get  small  shipments  to  interior  jobbers 
more  cheaply  than  the  independent  refiners.  The  trade 
of  the  latter  was  nearly  destroj'ed  ;  some  refineries  were 
closed  and  one  or  two  became  bankrupt. 

But  the  refiners  found  a  method  of  prolonging  the 
contest  one  year  more.  They  still  bad  the  Columbia 
Conduit  to  supply  them  with  crude  oil,  and  they  adopt- 
edj|the  plan  of  shipping  their  product  down  the  Ohio 
River  to  Huntington,  West  Virginia,  whence  it  was 
taken  by  the  Chesapeake  and  Ohio  Railroad  to  Rich- 
mond for  exportation.  By  this  roundabout  line  many 
thousands  of  barrels  were  shipped  during  1875  and 
1876.  The  exorbitant  character  of  the  trunk-line  charws 
is  evident  from  the  fact  that  a  rate  of  80  cents  a  barrel 
for  nearly  500  miles  of  additional  transportation,  with 
an  extra  transfer  at  considerable  expense,  was  remuner- 
ative to  the  Chesapeake  and  Ohio  Railroad.  But  even 
at  that  rate  the  Pittsburgh  refineries  were  at  a  disad- 
vantage. The  circuitous  route  w\as  more  expensive  at 
the  best  than  the  direct  and  rapid  one  closed  to  all  but 
the  Standard. ^rhe  river  half  of  it  was  dangerous  and 
useless  for  six  months  in  the  year,  from  low  water  in 
the  summer  or  ice  in  the  winter  ;|  and  when  the  long 
and  slow  journey  had  been  performed,  the  product 
reached,  not  a  great  exporting  city,  but  a  ])(^rt  just 
coming  into  use,  where  no  market  for  exportation  was 
established,  and  where  tiie  means  of  shipment  abroad 
were  indirect  and  uncertain.     It  was  evident  that  the 


80  The  Railways  and  the  Hepublic. 

struggle  w.'is  a  losing  one  for  the  independent  refiners, 
while  the  Standard  continued  to  extend  its  power  and 
wealth.  It  had  laid  a  pipe  line  of  its  own  from  the  oil 
reo-ions  to  Pittsburo-h,  meetino;  w^ith  none  of  the  ob- 
stacles  from  the  railways  that  had  been  thrown  in  the 
way  of  the  Columbia  Conduit  Company.  It  had  ex- 
tended its  refining  establishments  by  buying  out  or 
admitting  to  partnership  a  number  of  refining  firms 
in  New  York,  Philadelphia,  Baltimore,  and  West  Vir- 
ginia, so  that  at  every  important  refining  point  the 
Standard  had  a  foothold,  and  secured  to  its  branches 
advantages  w^hich  no  outside  refineries  could  have.  Its 
sharpest  fight,  however,  was  with  the  body  of  ten  or 
twelve  firms  in  Pittsburgh,  who  kept  their  indepen- 
dence for  about  four  years,  until  the  event,  famous  at 
that  day  as  "the  Potts  fight,"  at  first  revived  their 
hopes,  but  after  a  few  months  of  bright  prospects  sealed 
their  doom,  and  the  stru2:2:le  for  commercial  freedom 
ended  in  an  ignominious  surrender  to  the  Standard. 

In  the  early  part  of  IS 77  the  Pennsylvania  Railroad 
began  to  show  some  discontent  under  the  restrictions 
which  it  had  imposed  upon  itself  in  behalf  of  the 
Standard.  But  the  Standard  had  grown  from  the  po- 
sition of  a  bantling,  dependent  for  its  prosperity  upon 
railroad  favors,  to  that  of  a  tyrant  which  dictated 
terms  to  the  trunk  lines,  and  administered  punishment 
to  disobedient  railways,  by  throwing  all  its  traflSc  on 
the  lines  which  remained  faithful  to  its  interests. 
Having,  as  it  deemed,  the  Pittsburgh  refining  interest 
under  its  feet,  it  asserted  its  pow^r  over  the  railways, 
and  its  monopoly  of  the  refining  interests  in  the  East- 
ern cities,  by  ordering  the  Pennsylvania  Railroad  to 
refuse  the  carrying  business  of  the  Potts  combination. 


The  History  of  a  Commercial  Crime.  81 

This  was  an  association  of  Eastern  refineries,  second  in 
magnitude  only  to  the  Standard,  and  rumored  to  be 
second  also  in  the  discriminations  which  it  obtained 
from  the  railways.  Besides  its  refineries  in  the  East, 
this  combination,  through  the  Empire  Transportation 
Company,  a  subsidiary  corporation  of  the  Pennsyl- 
vania Railroad,  controlled  a  pipe  line  and  considera- 
ble producing  territory  in  the  oil  district.  With  these 
facilities,  and  with  a  low  rate  on  the  transportation  of 
crude  petroleum  from  their  pipe-lines  to  their  works, 
the  Potts  refineries  enjoyed  a  prosperous  and  expand- 
ing business  until  the  Standard  determined  that  the 
time  had  come  to  strike  a  blow  at  this  rival.  The 
arrogant  demand  that  the  Pennsylvania  Railroad 
should  turn  away  the  freight  of  the  Potts  refineries 
from  its  depots,  and  close  out  its  interest  in  the  favored 
corporation  which  it  was  maintaining,  was  met  by  a 
refusal  from  the  Pennsylvania  Railroad  managers,  who 
happened  to  be  in  fighting  mood,  and  a  freight  war, 
the  bitterest  that  had  yet  been  known,  was  precipi- 
tated upon  that  corporation.  The  railway  declared 
that  it  would  make  rates  for  all  independent  refiner- 
ies equal  to  those  given  to  the  Standard.  The  Stand- 
ard responded  by  turning  all  its  shipments  on  other 
lines,  leaving  the  Pennsylvania  Railroad  to  depend  on 
the  crippled  Pittsburgh  refiners  who  had  nearly  lost 
their  trade,  and  on  the  Potts  combination,  for  its  oil 
traflic.  If  the  fight  had  continued  on  that  line  the 
independent  interests  might  have  grown  so  as  to  com- 
pensate the  railway  for  its  loss  of  the  Standard's  busi- 
ness; for  as  soon  as  they  had  a  chance  to  compete  in 
the  foreign  markets  they  experienced  a  rapid  revival. 
But  other  influences  were  speedily  introduced  into  the 

6 


82  The  Railways  and  the  Republic. 

contest.  The  Pennsylvania  Railroad  was  taught  to 
feel  the  power  of  the  corporation  for  whose  increase 
and  wealth  it  was  more  responsible  than  any  other 
one  agency. 

The  New  York  Central  and  Erie  roads  showed  their 
fidelity  to  the  cause  of  the  Standard*  by  supporting  its 
demand  and  attaching  the  Pennsylvania  Railroad  in  a 
bitter  war  of  rates,  which  reduced  its  revenues  at  all 
points.  The  opposing  capitalists  controlled  the  money 
market  so  as  seriously  to  hamper  the  finances  of  the 
insubordinate  raih'oad,  already  crippled  by  other  ad- 
verse influences.  The  great  Pennsylvania  Raih'oad 
found  that  its  creature,  the  Fi'ankenstein  Avhich  owed 
existence  and  groAvth  to  it,  was  now  its  master  and  con- 
queror. The  humiliating  fact  was  acknowledged  by  a 
surrender,  and  the  rebellious  corporation  passed  again 
under  the  yoke  of  the  Standard,  in  the  closing  months 
of  1877.  The  railway  protected  the  interests  of  its 
proteges  to  the  best  of  its  abilit3\  The  Standard  pur- 
chased the  refineries  of  the  latter  in  the  East,  and  their 
oil-carrying  cars,  pipe  lines,  and  producing  territor}^, 
concluded  an  apportionment  scheme  by  which  it  guar- 
anteed to  the  Pennsylvania  Railroad  a  fixed  share  of 
the  petroleum  freight  traffic,  and  entered  on  its  final 
and  absolute  monopoly  of  the  oil-refining  trade.     For 

*  "The  Central  and  Erie  railroads  joined  hands  with  the  Standard  and 
proceeded  to  enforce  its  demand  by  a  war  of  rates,  winch  terminated  suc- 
cessfully in  October  of  that  year.  Tlie  oil  traffic,  instead  of  being  more 
profitable  to  the  Central  and  Erie,  has  certainly  been  less  remunerative 
since  that  war  than  before.  We  are  unable  to  find  the  slightest  respect 
wherein  it  resulted  to  the  advantage  of  these  roads.  The  Standard  got 
the  '  plum,'  and  as  a  result  it  owns  exclusively  tlie  terminal  facilities  for 
liandling  oil  in  Philadelpliia  and  Baltimore.  It  owns  and  controls  the 
terminal  facilities  for  handling  oil  of  the  four  trunk-roads." — New  Yorli 
Investigating  Committee's  Report^  p.  44. 


The  History  of  a  Commercial  Crime.  83 

its  victory  over  the  Peiins3'lvania  was  not  the  only 
step  by  which  it  strengthened  its  dominion  at  this 
time.  The  Baltimore  and  Ohio  had  ao:aiu  mven  the 
Pittsburgh  refiners,  who  received  their  supplies  from 
the  Columbia  Conduit  Compan}-,  a  chance  to  ship  their 
product  over  its  road.  This  would  have  preserved 
the  life  of  the  independent  refining  interest,  and  could 
not  be  suffered  by  the  monopoly.  The  trunk-line  in- 
fluence induced  that  road  to  notify  the  Columbia  Con- 
duit Company  that  no  more  oil  transported  by  its  line 
would  be  received  on  the  Baltimore  and  Ohio.  At  the 
same  time,  a  j^roposition  was  made  to  that  company 
for  a  purchase  of  its  pipe  line.  As  the  choice  was 
between  sale  and  extinction,  the  proposition  was  ac- 
cej)ted,  the  pipe  line  passed  into  the  hands  of  the  Stand- 
ard and  was  torn  up,  leaving,  as  the  only  pipe  line 
running  to  Pittsburgh,  the  one  connected  with  the 
Standard  refineries. 

This  made  the  monopoly  absolute  master  of  the  re- 
fining trade.  It  controlled  every  avenue  of  transpor- 
tation, managed  all  the  largest  refineries  in  the  land, 
and  Avas  able  to  shut  off  every  competitor  from  either 
receiving  supplies  or  shipping  its  product.  If  any  re- 
fineries in  any  part  of  the  land  were  permitted  to  run 
they  owed  their  immunity  to  their  insignificance.  The 
Pittsbui'gh  refiners,  ^vlio  had  struggled  for  four  years 
against  the  domination  of  the  Standard,  were  left  with- 
out any  avenue  of  escape,  and  the  rigor  of  their  fate 
can  be  perceived  from  the  fact  that  at  the  beginning 
of  1878  nearly  every  firm  of  the  original  refining  in- 
terests of  Pittsburgh  had  either  made  the  best  terms 
practicable  ^vith  the  Standard  or  accepted  the  alter- 
native of  the  bankrupt  courts.     From  its  original  com- 


84  The  Railways  and  the  Bepuhlic. 

monplace  proportions,  tlie  Standard  bad,  at  this  time, 
swelled  to  a  corporation  whose  wealth  was  estimated  to 
exceed  $30,000,000.  The  sources  from  which  most  of 
this  wealth  was  drawn  may  be  undei-stood  from  the  dis- 
closures afterwards  made  of  the  discriminations  in  its 
favor.  Up  to  that  time  these  favors  could  only  be  in- 
ferred from  tlie  fact  that  the  Standard  could  ship  oil 
over  the  trunk  lines  when  none  of  its  competitors 
could  do  so  at  prevailing  rates.  The  first  legal  avowal 
of  its  rates  was  in  the  case  of  H.  L.  Taylor  et  al.  vs. 
The  Standard  Oil  Company,  in  which  it  was  alleged 
by  the  plaintiif  that  a  rebate  of  $1  per  barrel  had 
been  paid  by  the  railways  to  the  Standard.  The  re- 
ply of  the  Standard  admitted  a  payment  of  a  rebate, 
but  denied  that  it  was  of  the  amount  named.  Subse- 
quently Mr.  A.  J.  Cassatt,  of  the  Pennsylvania  Rail- 
road, testified  before  the  New  York  Legislative  Inves- 
tiiratino;  Committee  that  in  eiohteen  months  the  rail- 
ways  had  paid  to  the  Standard  the  sum  of  $10,000,000 
in  rebates.  The  period  covered  by  the  testimony  was 
a  year  or  two  later  than  the  time  now  under  consid- 
eration. But  the  inference  is  plain  that  the  rebates 
paid  the  Standard  during  the  period  of  its  growth 
from  an  ordinary  corporation  to  a  complete  monopoly 
were  equal  to  its  entire  increase  of  wealth  for  that 
time.  In  other  words,  its  entire  profits  were  comprised 
within  the  discriminations  made  in  its  favor  by  the 
railways. 

The  compact  by  which  the  railways  surrendered 
themselves  and  the  public  interests  to  the  rule  of  the 
Standard  was  well  understood  to  be  vital  and  bind- 
ing; but  of  its  exact  and  shameful  details  the  public 
was  kept  in  ignorance  until  two  years  later,  when  the 


The  History  of  a  Commercial  Crime.  85 

correspondence,  comprising  the  contract,  was  brought 
out  by  legislative  investigation.  In  this  contract  the 
Standard  assumed  the  power  of  parcelling  out  the  traf- 
fic, not  only  between  the  different  trunk  lines,  but  be- 
tween the  different  cities.  Of  the  shipments  to  the 
seaboard  sixty-three  per  cent,  should  go  to  New  York, 
of  which  the  New  York  Central,  Pennsylvania  Rail- 
road, and  Erie  were  each  to  carry  one  third ;  of  the 
remaining  thirty-seven  per  cent,  the  Penns3dvania  Rail- 
road was  to  be  given  twenty-six  shares,  and  the  Balti- 
more and  Ohio  eleven.  For  guaranteeing  this  division 
of  the  traffic  the  Standard  received  a  "commission" 
(as  it  was  called  in  this  document)  of  not  less  than 
ten  per  cent,  of  the  rate.  This  commission  was  stipu- 
lated to  be  subject  to  indefinite  increase,  but  under 
no  circumstances  to  reduction.  It  was  also  reinforced 
by  the  important  provision  that  no  other  shipper  of 
oil  should  have  any  commission  or  rebate  whatever, 
unless  his  shipments  were  as  large  as  those  of  the 
Standard.*  As  the  railways  had  already  raised  the 
Standard  to  the  position  of  controlling  over  ninety-five 
per  cent,  of  the  trade,  and  had  crushed  out  nearly  all 
its  rivals,  it  will  be  seen  that  the  probability  of  find- 
ing such  a  shipper  to  enjoy  equal  terms  with  the  mo- 
nopoly was  very  remote.  Nor,  with  the  Standard  in 
control  of  the  trade,  was  it  likely  to  have  any  difficulty 
in  carrying  out  its  guarantee  of  the  percentages  Avhieh 
it  had  parcelled  out  among  the  railways.  The  com- 
pact was  a  league  and  covenant  between  the  railways 
and  the  Standard,  that  no  independent  competition  in 
the  petroleum  trade  should  be  permitted  by  the  rail- 

*  Correspondence  of  Wni.  Kockafellcr  and  Tlios.  A.  Scott,  Oct.  17, 
1877. 


86  The  Railways  and  the  BejmUic. 

ways.  It  bound  tbe  corporations  to  the  principle  that 
competition  was  to  be  abolished,  and  handed  over  the 
producers  and  consumers  alike  to  the  tender  mercies 
of  the  monopoly  which  was  established  by  the  power 
of  the  railways.  It  might  be  supposed  that  such  a 
complete  surrender  to  its  power  would  satisfy  the  am- 
bition of  the  Standard.  But  it  appears  that  there  -was 
one  more  point  which  it  desired  to  gain.  On  Febru- 
ary 15,  1878,  the  American  Transfer  Company,  con- 
trolling the  crude  shipments  of  the  Standard  combi- 
nation, asked  from  the  Pennsylvania  Railroad  the 
extraordinary  commission  of  20  cents  a  barrel  on  all 
crude  oil  transported  by  the  raili'oad  for  shippers  not 
members  of  the  combination.  Some  of  the  producers 
had  been  shipping  crude  petroleum,  enduring  the  ten 
per  cent,  discrimination,  and  to  stop  such  an  indepen- 
dent course,  the  commission  of  20  cents  per  barrel  was 
asked  of  the  Pennsylvania  Kailroad  for  every  barrel 
of  oil  it  transported,  whether  shipped  by  the  Stand- 
ard combination  or  by  independent  producers.  It 
would  seem  almost  incredible  that  any  shipper  could 
ask  for  a  payment  on  his  rival's  business,  but  the  letter 
making  the  demand  is  extant,  and  so  is  the  still  more 
astounding  letter  of  the  third  Vice-President  of  the 
Pennsylvania  Railroad  to  the  Comptroller  of  that  com- 
pany, stating  that  he  has  seen  the  documents;  and  that 
the  New  York  Central  and  Erie  roads  were  allowing 
such  "rebates"  of  from  20  to  35  cents;  and  ordering  the 
comptroller  to  make  out  vouchers  for  the  rebate  of  20 
cents  to  the  American  Transfer  Company  on  the  entire 
crude  petroleum  business  of  the  Pennsylvania  Railroad.* 

*  Correspondence  of  Daniel  O'Day  and  A.  J.  Cassatt,  Feb.  15  and  May 
15,  1878. 


The  History  of  a  Commercial  Crime.  87 

A  review  of  the  position  of  the  Standard  Oil  Com- 
pany at  this  time  showed  that  it  had  little  more  to 
desire  in  the  extension  of  its  empire  over  the  oil  refin- 
ing interest  of  the  United  States.  It  controlled,  in 
Cleveland,  Pittsbnrgh,  Baltimore,  Philadelphia,  New 
York,  and.  Boston,  works  comprising  ninety-five  per 
cent,  of  the  refining  capacity  of  the  United  States,  all 
the  pipe  lines  within  the  oil  regions,  and  about  one 
sixth  of  the  producing  territory.  It  wielded  an  abso- 
lute and  unchecked  control  over  every  department  of 
the  petroleum  trade.  It  could  dictate  every  step  taken 
by  the  railways,  impose  terms  on  any  outside  dealer 
in  crude  or  refined  petroleum,  and,  if  there  was  any 
disobedience,  could  administer  efifective  discipline  to 
the  recusant,  whether  a  raihvay  corporation  or  a  mer- 
chant. The  few  outside  refiners  who  mana2;ed  to 
keep  their  works  in  intermittent  operation  were  forced 
to  receive  their  crude  oil  by  rail,  while  the  Standard 
refineries  were  supplied  directly  by  pipe  lines,  with 
an  economy  of  67^  cents  per  barrel.  By  its  position 
as  the  only  purchaser  of  crude  petroleum,  and  its 
control  of  pipe-line  certificates,  it  could  raise  or  de- 
press the  markets  at  its  will;  it  could  crush  out  any 
attempt  to  revive  competition ;  it  had  bound  to  its 
service  the  four  great  trunk  lines ;  and  in  the  defence 
of  its  interests  up  to  and  after  this  time,  its  pi'actically 
unlimited  corruption  fund  secured  to  its  allegiance  the 
legislatures  of  the  three  greatest  states  of  the  Union. 
From  this  time,  the  career  of  the  Standard  consisted 
in  maintaining  the  absolute  character  of  its  rule,  ex- 
torting the  full  profits  to  be  secured  ])y  its  monopoly, 
and  punishing  all  who  rebelled  against  it. 

It  was  not  long  after  the  final  establishment  of  the 


88  The  Railways  and  the  Mepuhlic. 

monopoly  before  feeble  attempts  \vere  made  to  over- 
throw it.  The  Baltimore  and  Ohio  Kailroad  had  hardly 
allowed  the  pipes  of  the  Columbia  Conduit  Company 
to  be  taken  out  of  the  ground,  before  it  discovered 
that  the  mess  of  pottage  for  'svhich  it  had  sold  its 
birthright  of  free  competition  was  small  and  worth- 
less. It  would  have  resumed  competition,  but  its  con- 
nection by  the  Columbia  Conduit  Company  with  the 
oil  region  was  gone.  An  attempt  was  made  to  bring 
a  new  pipeline  to  Pittsburgh, which  produced  another 
movement  for  a  free  pipe  law.  The  oil  regions  united 
with  a  few  refiners  in  asking  for  that  measure;  but  in 
vain.  Even  the  attempts  to  hold  a  public  meeting  in 
iaxoY  of  the  new  bill  were  smothered  by  the  Standard. 
To  prevent  the  expression  of  independent  public  opin- 
ion, a  meeting  called  for  that  purpose,  in  Pittsburgh, 
was  packed  by  the  workmen  of  the  Standard  refiner- 
ies, who  howled  down  every  speaker  advocating  com- 
mercial freedom  in  the  oil  trade.  Paid  articles  in  the 
press  asserted  that  the  measure  would  take  the  refin- 
ing trade  from  Pittsburgh  and  cany  the  whole  busi- 
ness to  other  states.  As  this  was  just  what  the  Stand- 
ard was  doing — the  oil  business  at  Pittsburgh  having, 
at  that  time,  diminished  fifty  per  cent. —  only  those 
who  wished  to  earn  the  Standard's  wages  were  afl:ected 
by  such  a  plea.  But  that  class,  especially  among  the 
law-makers  of  Pennsylvania,  was  numerous  enough  to 
secure  the  defeat  of  tlie  free  pipe  bill.  That  measure 
was  again  voted  down,  and  the  attempts  to  secure  an 
independent  line  of  transpoi'tation  were  abandoned. 

The  seaboard  pipe  line  Avas  another  project  which 
assumed  more  threatening  proportions.  This  scheme 
aimed  at  carrying  petroleum  in  pipes  direct  from  the 


The  History  of  a  Commercial  Crime.  89 

wells  to  the  seacoast.  It  could  not  reach  the  seaboard 
with  the  pipe-line  law  of  Pennsylvania  as  it  then  was; 
but  in  June,  1879,  the  opposition  company  succeeded 
in  getting  its  pipes  through  to  a  railway  which  was 
not  in  the  Standard  combination.  By  this  means  it 
established  a  partial  competition  with  one  branch  of 
the  Standard.  Tlie  railways  rallied  their  united  pow- 
ers this  time  to  protect  their  monopoly  and  master 
"against  injury  by  competition."  A  meeting  of  the 
railway  and  Standard  officials  on  June  5  reduced 
the  open  ivate  on  crude  petroleum,  first  to  80  and 
then  to  30  cents,  while  the  Standard  at  once  ob- 
tained the  special  rate,  for  its  own  private  use,  of  20 
cents  per  barrel.  Upon  this  very  low  cost  of  trans- 
portation it  made  a  profit  on  about  two  millions  of 
barrels  of  oil,  which  it  had  previously  contracted  to 
deliver.  The  continuance  of  such  a  rate,  while  the 
seaboard  line  kept  up  its  fight,  allows  but  one  of  two 
conclusions.  Either  the  rate  of  $1.15  to  $1.90  per  bar- 
rel, which  the  railways  had  chai'ged  to  the  general 
trade,  was  extortionate,  or  the  rate  of  20  cents,  which 
they  gave  to  the  Standard,  -was  throwing  away  their 
stockholders'  money  for  the  benefit  of  the  monopoly. 
Which  horn  of  the  dilemma  may  be  chosen  makes  no 
difference.  The  important  fact  is  that  during  that 
year  the  railways  kept  up  the  fight  to  destroy  compe- 
tition, until  the  stockholders  of  the  seaboard  pipe-line 
were  forced  into  quietly  selling  their  interests  to  the 
Standard,  and  the  monopoly  was  again  triumphant. 

In  the  meantime  the  Standard  Oil  Company  ex- 
tended its  pipe  lines  to  its  refineries  in  Cleveland  and 
in  eastern  cities;  and  it  is  noticeable  that  while  the 
railways  always  placed  insuperable  obstacles   in   the 


90  The  Railways  ajid  the  Eepuljlic. 

^vay  of  iudependent  lines,  the  monopoly  could  lay  its 
pipes  wherever  it  desired.  It  controlled  the  jobbing 
trade,  and  rendered  it  almost  impossible  for  any  out- 
side refiner  to  sell  his  product  even  to  domestic  dealers. 
Its  tyranny  was  felt  by  the  dealers  in  oil  throughout 
the  country.  It  maintained  an  oi'ganization  which 
watched  the  entire  trade,  and  if  any  wholesale  dealer 
or  jobber  undertook  to  sell  the  product  of  independent 
refiners,  or  to  sell  for  less  than  its  prescribed  prices,  he 
\vas  cut  off  from  further  supplies,  and  every  means  that 
unscrupulous  wealth  could  employ  was  used  to  injure 
his  commercial  standing.  Even  at  such  a  distant  point" 
as  Columbus,  Mississippi,  w^hen  the  grocers  claimed  the 
right  to  sell  independent  petroleum  that  had  reached 
them  by  the  river  route,  the  monopoly  established  a 
grocery  store  and  sold  goods  below  cost  in  order  to 
drive  the  merchants  into  submission.  In  this  case, 
happily,  the  monopoly  was  defeated,  as  the  merchants 
unitedly  refused  to  buy  the  oil  of  the  Standard  Com- 
pany until  it  retracted  its  claim  of  dictation,  and,  per- 
haps because  of  the  smallness  of  their  trade  and  their 
location,  they  were  successful.  A  coal  mei'cliant  in 
Ohio,  who  had  some  spare  storage  room,  bought  an 
invoice  of  lubricating  oil  from  an  independent  refiner}', 
and  as  soon  as  the  regulators  of  the  Standard  learned 
of  his  transgression  they  purchased  coal,  and  ordered 
their  accents  to  sell  it  at  less  than  cost,  initil  he  was 
forced  to  succumb.  In  every  city  in  which  the  retail 
petroleum  dealers  have  disobeyed  the  Standard's  be- 
hest— and  even  in  some  others — the  monopoly  has  put 
tank  wagons  in  operation,  which  traverse  the  streets, 
and  sell  petroleum  at  retail  to  private  consumers.  In 
Baltimore  the  rebellious  merchants  were  punished  by 


The  History  of  a  Commercial  Crime.  91 

the  sale  of  petroleum  at  retail,  from  these  wagons,  at  a 
price  lower  than  that  which  the  Standard  charged  to 
jobbers;  but  the  difference  was  made  up  by  raising 
the  price  to  the  people  after  the  local  merchants  had 
been  driven  out  of  the  trade.  In  short,  for  the  seven 
years  since  the  establishment  of  its  absolute  empire, 
the  Standard  Company,  as  a  journalist  puts  it,  has 
"  bullied  the  trade  of  the  country,  wholesale  and  retail 
alike."  With  its  power  to  control  the  retail  trade,  at 
one  time  checking  shipments  and  glutting  the  market 
with  crude  oil,  at  another  taking  exactly  the  opposite 
course,  accompanied  by  its  almost  unlimited  resources 
for  manipulating  the  speculative  exchanges,  and  by  the 
constant  rebates  through  "which  it  monopolizes  the  ex- 
jDort  trade,  the  accumulation  of  wealth  by  the  Standard 
has  been  unchecked.  Its  resources,  which  in  1873  were 
$1,000,000,  and  in  1878  had  grown  to  $30,000,000,  are 
now  rated  at  the  enormous  sum  of  $100,000,000;  and 
as  the  capital  stock  of  the  Standard  Trust  Company 
and  the  American  Transfer  Company  at  par  amount 
to  nearly  that  sum,  the  estimate  is  probably  not  ex- 
cessive. 

It  has  been  claimed  that  this  vast  a2:2:re2:ation  of 
wealth  has  been  created  l)y  superior  business  ability. 
One  writer  says :  "  In  one  sense  the  Standard  is  en- 
titled to  all  it  has.  Its  energy,  foresight,  sharpness, 
and  calculating  precision  of  probabilities  and  possibil- 
ities, have  brought  it,  Avitli  exceptional  luck,  its  vast 
accumulation  of  wealth  and  power  and  2:)roperty."  This 
is  an  erroneous  view.*     It  is  true  that  the  Standard 

*  "  That  tlicse  gentlemen  possess  eminent  business  talent  is  obvious ;  but 
that  they  possess  a  monopoly  of  the  business  ability  of  the  country  com- 
mensurate with  their  monopoly  of  the  oil  trade  is  eminently  absurd." — 
2\ew  Torh  Invest i{/ating  Committee's  Rejiort,  p.  44. 


92  The  Railways  and  the  Republic. 

has  been  managed  with  ability.  The  greatest  foresight 
and  audacity  were  required  to  conceive  the  monopoly, 
and  to  obtain  from  the  railways  the  favors  which 
established  it.  If  a  highway  robber  should  gain  vast 
plunder  by  bribing  the  railways  and  the  courts  to  let 
him  rob  trains  with  impunity,  his  remarkable  boldness 
of  conception  and  soundness  of  judgment  in  selecting 
his  tools  would  be  acknowledged.  But  he  would  owe 
his  wealth  not  to  his  ability,  but  to  nefarious  corrup- 
tion and  violation  of  duty  on  the  part  of  those  whose 
business  it  is  to  protect  the  public.  In  like  manner 
the  ability  and  energy  of  the  managers  of  the  Standard 
Oil  Company  would  never  have  given  them  more  than 
local  importance,  if  they  had  not  been  favored  by  the 
railways  with  rebates  and  privileges  that  enabled  them 
to  crush  competition.  Nor  could  that  monopoly  have 
been  maintained  without  the  corruption  of  legislators 
and  the  bribery  of  public  officers. 

The  country  has  been  startled  during  the  last  year 
by  the  exposure  of  some  of  the  methods  used  by  this 
great  corporation  to  crush  out  its  latest  rivals.  In 
a  suit  of  a  Buffalo  company  against  one  of  the  Stand- 
ard corporations*  it  was  proved  that  the  defendants  had 
enticed  away  the  manager  of  the  plaintiff's  works,  by 
threats  and  bribery ;  that  they  had  secured  the  delivery 
of  adulterated  oil  to  the  plaintiffs,  and  had  brought 
vexatious  suits  against  them.  Testimony  was  offered 
that  the  agents  who  enticed  away  the  manager  of  the 
independent  concern  had  tried  to  get  him  to  leave  the 
works  in  such  a  condition  that  they  might  be  blown 

*  Buffalo  Lubricating  Oil  Company  vs.  Vacuum  Oil  Company  of  Roch- 
ester. In  this  case  the  plaintiflfs  secured  a  verdict  of  $30,000  damages 
for  conspiracy. 


The  History  of  a  Commercial  Crime.  93 

up  and  destroyed,  but  this  was  excluded  by  the  court. 
In  another  case,  recently  exposed  in  Cleveland,  an  of- 
ficer of  the  Standard  Oil  Company  tried  to  bribe  the 
bookkeeper  of  an  independent  firm  to  betray  the  par- 
ticulars of  its  business  and  the  names  of  its  customers. 
These  disclosures  drew  from  the  press  expressions  of 
surprise  and  condemnation.  It  is  hard  to  see  why 
they  should  excite  surprise.  Such  acts  are  the  neces- 
sary and  natural  accompaniments  of  the  policy  w^hich 
created  the  monopoly,  and  if  they  are  dishonest  and 
oppressive,  it  is  because  that  whole  policy  is  one  of 
dishonesty  and  oppression.  If  unscrupulous  men  have 
succeeded  in  inducing  great  railway  corporations  to 
give  them  unjust  advantages  to  the  ruin  of  their  rivals, 
and  have  thus  built  up  wealth  to  the  extent  of  a  hun- 
dred millions,  are  they  likely  to  shrink  from  corrupt- 
ing the  manager  of  an  independent  establishment  to 
desei't  his  employers?  When  they  have  induced  legis- 
lators to  defeat  laws  securing  to  all  competitors  equal- 
ity in  transportation,  will  they  hesitate  to  bribe,  if  pos- 
sible, an  obscure  bookkeeper  to  disclose  the  secrets  of 
his  employers?  The  crushing  out  of  a  single  rival  is 
bad  enough ;  but  it  has  not  the  public  significance  that 
accompanies  the  reduction  of  an  entire  industry  to 
such  ruins  as  can  be  seen  for  miles  along  the  banks  of 
the  Allegheny  Kiver  in  the  suburbs  of  Pittsburgh. 
These  conspiracies  are  but  illustrations  of  the  corrup- 
tion and  unscrupulousness  which  marked  the  rise  of 
the  Standard  Oil  Company  between  1874  and  1879. 

With  what  forces  the  monopoly  of  the  Standard  is 
still  upheld,  was  disclosed  by  two  pulilic  events  in 
Ohio  during  the  past  year.  A  number  of  independent 
refineries  at  Cleveland  have  lately  attempted  to  com- 


94:  The  Railways  and  the  Bepublic. 

pete  with   the  Standard.     It  was   essential   to   have 
a  pipe  line  from  the  Pennsylvania  oil  fields  to  their 
works.      They  petitioned  the  Ohio  legislature  for  a 
law  authorizing  it,  setting  forth  that  they  were  obliged 
to  pay  30  cents  a  barrel  to  the  Pennsylvania  Com- 
pany for  transporting  crude  oil  from  the  oil  regions  to 
their  w^orks;    that  the  Lake  Shore  and  New  York, 
Pennsylvania,  and  Ohio  roads  refused  to  carry  crude 
oil  at  all,  since  the  Standard  Company  had  laid  down 
its  double  line  of  pipes ;  that  the  latter  company,  with 
two  pipes,  refused  to  transport  petroleum  for  them  at 
any  price,  while  carrying  for  its  own  refineries  some 
5,000,000  barrels  a  year;  that  with  a  common-carrier 
line,  such  as  they  were  endeavoring  to  establish,  the 
independent  refiners  could  bring  their  crude  supplies  at 
a  cost  of  10  cents  per  barrel,  as  against  30  cents  charged 
by  the  only  line  which  would  transport  their  oil ;  and  if 
they  could  obtain  such  a  line  they  could  refine  600,000 
barrels  of  oil  the  first  year  and   twice  as  much  the 
next.     On  such  a  state  of  facts  what  could  the  rej^re- 
sentatives  of  the  people  do,  but  at  once  place  the  compet- 
ing refineries  on  an  equality  with  the  Standard  ?   But,  in 
the  same  legislature  which  sent  a  representative  of  that 
great  corporation  to  the  United  States  Senate,  the  meas- 
ure was  quietly  defeated,  after  such  work  by  tlie  lobby 
that  members  of  the  body  and  some  of  the  Ohio  press 
characterized  it  as  "an  indelible  disgrace  to  the  state." 
The  discrimination  against  the  independent  refiners 
on  another  branch  of  their  business  was  shown  beyond 
dispute  in  the  suit  of  Scofield,  Schurmer,  <fe  Teagle 
against    the  Lake    Shore   road,  which    was   tried   in 
the  Cleveland  courts  last  year.     These  independent 
refiners  asked  for  equal  rates  with  the  Standard  over 


The  History  of  a  Commercial  Crime.  95 

that  railway  to  Western  cities.  Failing  to  obtain  these 
rates,  tbey  brouglit  suit  against  the  Lake  Shore  Com- 
pany for  damages.  The  testimony  of  the  officers  of 
the  railway  in  this  suit  establishes  the  fact  of  discrim- 
ination. The  president  and  general  manager  testified 
that  his  road,  ever  since  his  connection  with  it,  had 
given  better  rates  to  the  Standard  than  to  other  refin- 
eries. The  general  freight  agent's  testimony  showed 
the  character  of  that  discrimination,  in  the  fact  that  the 
Standard  had  at  one  time  enjoyed  a  rate  to  Chicago  of 
35  cents  per  barrel  and  28  cents  in  tank  cars,  while  the 
tariff  rate  was  80  cents  per  barrel.  This  was  an  extreme 
case,  the  averacre  discrimination  beins;  a  little  more  than 
20  cents  per  barrel,  on  shipments  to  Chicago,  and  to  other 
cities  in  proj^ortion.  The  advantage  of  the  Standard 
in  its  pipe-line  transportation  is  equivalent  to  about 
30  cents  per  barrel  on  refined  oil,  so  that  the  total  dis- 
crimination in  its  favor  amounts  to  50  cents  per  barrel. 
Upon  its  average  shipments  of  600,000  barrels  per 
year  over  the  Lake  Shore,  therefore,  the  Standard  has 
a  margin  of  profit  of  $300,000  annually,  enabling  it, 
on  this  branch  of  its  business,  to  defy  competition. 

It  should  be  said  that  within  a  year  there  have  been 
indications  that  efforts  to  establish  independent  refin- 
ing interests  are  not  utterly  hopeless.  Two  years  ago, 
after  the  right  to  run  pipe  lines  over  the  state,  freely 
exercised  by  the  Standard,  had  been  for  nine  years 
denied  to  other  oil  interests,  an  exceptionally  inde- 
pendent legislature  of  Pennsylvania  passed  a  free  pipe 
bill.  Tliis  enables  crude  petroleum  to  be  carried  to 
independent  refineries,  if  enough  of  it  is  wanted  to  sup- 
f)ort  such  a  line.  One  or  two  independent  refineries 
have  been  started  at  Pittsburgh.     A  new  pipe  line  has 


96  The  Railways  and  the  Republic . 

been  laid  from  the  Pittsburgh  refineries  to  the  nearest 
districts  of  the  oil  fields,  notwithstanding  the  opposi- 
tion of  the  railways  and  the  Standard.     The  eftect  of 
competition  upon  the  producing  interests  is  shown  by 
the  fact  that  wherever  this  new  line  has  reached  the 
wells,  the  Standard  has  instructed  its  agents  to  pay  an 
advance  of  10  to  12\  cents  per  barrel  above  the  market 
quotations,  for  crude  oil  delivered  to  its  pipe  lines. 
This  attempt  to  break  down  competition  is  likely  to 
defeat  itself,  as  it  shows  the  producers  what  they  have 
lost  through  the  absence  of  competition,  and  induces 
them  to  sustain  the  project  which,  at  its  very  start,  se- 
cures an  advance  on  their  product  equal  to  $4,000,000 
on  their  entire  stock.     The  independent  refineries  of 
Cleveland,  twelve  or  more  in  number,  have  the  lakes 
open  to  them  for  eight  months  of  the  year.     With  a 
discrimination  of  20  cents  a  barrel  against  them   on 
their  crude  supplies,  they  have  proved  that  they  can 
at  least  maintain  their  existence;   and   they  hope,  if 
they  obtain  the  power  to  build  a  pipe-line  to  their 
works,  to  secure  an  important  and  rapid  expansion  of 
their  business.    But  the  work  which  has  been  done  by 
the  railways  during  the  past  ten  years,  in  building  up 
the  monopoly,  wall  make  competition  a  difficult  task. 
An  independent  pipe-line  must  compete  with  the  Stand- 
ard pipe-lines  and  their  capital  of  $25,000,000,  having 
branches  at  every  well  in  the  producing  regions,  and 
controlling  tanks  and  delivery  stations  at  every  point 
in  the  trade.     The  independent  refiners  must  measure 
their  strength  against  the  Standard  Company  with  its 
capital  of  $70,000,000,  present  in  eveiy  market  of  the 
Avorld,  controlling  every   avenue   and   branch    of  the 
trade,  descending  even  to  the  sale  by  the  half  gallon  to 


The  Ilistory  of  a  Commercial  Crime.  97 

consumers  irom  its  tank  wagons,  at  less  than  cost, 
wherever  its  rivals  are  able  to  put  their  products  iu 
the  market.  As  surely  as  justice  and  commercial  as 
well  as  political  freedom  must  finally  prevail,  the 
struggle  for  freedom  in  this  trade  will  some  day  be 
triumphant ;  but  the  exertions  of  the  railways  to  estab- 
lish and  maintain  the  monopoly  make  the  odds  fearful, 
for  the  time,  against  freedom  and  independence. 

Pleas  are  never  wanting  to  justify  monopoly,  and 
those  advanced  on  behalf  of  the  Standard  require 
some  consideration.  They  have  an  especial  interest  in 
connection  with  the  subject  of  railway  discriminations 
and  railway  pools,  as  they  exhibit  in  an  extreme  form 
the  principles  on  which  these  practices  are  defended. 
It  is  claimed  on  behalf  of  the  Standard  Company,  first, 
that  by  apportioning  freights  among  the  railways  en- 
gaged in  carrying  petroleum,  it  enabled  them  to  main- 
tain profitable  rates,  and  that  by  guaranteeing  and  en- 
forcing that  apportionment,  it  was  of  actual  service  to 
the  railways ;  second,  that  the  combination  of  refining 
interests  out  of  which  the  Standard  monopoly  grew, 
simply  secured,  by  union,  profits  which  the}-  could  not 
have  secured  in  competition.  It  was  argued  that  as 
the  great  bulk  of  the  petroleum  product  of  this  coun- 
try was  destined  for  exportation,  the  devices  which  in- 
creased the  cost  of  the  staple  at  the  seaboai'd  did  no 
harm  to  the  producers.  On  behalf  of  the  railways  it 
is  urged  that  the  influence  of  the  Standard  in  sustain- 
ing rates  justified  the  discriminations  in  its  favoi-;  and 
the  case  is  presented  as  an  instance  of  the  princi])le 
that  I'aihvay  managers  will  give  the  best  I'ates  to  the 
largest  shippers.  Prominent  railway  men  have  de- 
clared that  as  the  Standard  could  cjive  them  larsjer 


98  The  Hallways  and  the  Eepvhlic. 

shipments  than  any  other  refiner,  they  coulJ  give  bet- 
ter rates  to  it  than  to  its  competitors.  These  argu- 
ments connect  themselves  with  the  whole  subject  of 
pooling  and  discrimination,  the  thorough  discussion  of 
which  must  be  reserved  for  subsequent  chapters ;  but 
some  of  the  principles  applicable  to  this  case  call  for 
notice  here. 

Waiving  for  the  present  the  inconsistency  of  the  po- 
sition of  the  Standard,  as  at  once  the  great  upholder 
of  railway  rates  and  the  recipient  of  lower  rates  thau 
any  other  refiner  ever  obtained,  the  claim  that  its  in- 
fluence on  prices  has  not  injured  the  producers  of  oil 
must  be  emphatically  denied.  Since  the  Standard 
Company  acquired  its  power  the  producing  interests 
of  the  oil  region  have  been  in  a  condition  of  chronic 
depression.  The  cost  of  crude  petroleum  has  been 
kept  at  a  low  average,  while  the  charges  for  refining 
and  transportation,  imposed  by  the  power  of  the  Stand- 
ard, have  forbidden  a  corresponding  reduction  of  the 
price  abroad,  and  thus  prevented  the  increased  de- 
mand which,  in  a  normal  condition  of  trade,  would 
compensate  for  low  prices.  The  phenomenal  position 
of  the  controlling  power  in  that  industry  has  been 
such  that  it  was  enabled  practically  to  say  to  the  pro- 
ducers: "You  must  expend  the  labor  necessary  to 
bring  the  oil  to  the  surface.  Except  as  regards  the 
portion  of  the  territory  which  we  own,  we  will  make 
no  outlay  and  take  none  of  the  risks  in  production  ; 
but  when  the  oil  is  produced,  by  our  control  of  the 
avenues  of  transportation,  we  will  take  exclusive  charge 
of  it,  fix  the  price  for  which  ^ve  will  buy  it,  and  ap- 
propriate the  lion's  share  of  the  receipts  from  the  oil 
when  it  is  refined  and  taken  to  market.     If  you  do 


T!ie  History  of  a  Commercial  Crime.  99 

not  like  our  terms  you  can  let  the  oil  run  to  waste  or 
leave  it  undisturbed  in  its  subterranean  reservoirs.*' 
The  recent  action  of  the  Standard,  in  offering  an  ad- 
vance  of  10  to  12-|  cents  per  barrel  on  the  market 
price  of  oil  wherever  the  competing  line  has  reached 
the  wells,  shows  that  the  loss  to  the  producers, 
through  the  lack  of  competition  iu  transportation, 
for  the  last  eight  years,  must  be  reckoned  by  mill- 
ions. Consider  the  present  situation  of  the  petroleum 
market  with  a  surplus  stock  of  crude  oil  equal  to  more 
than  a  year's  consumption,  which,  for  about  two  years, 
has  depressed  the  price  below  the  average  cost  of  pro- 
duction ;  while,  on  the  other  hand,  the  price  in  Eu- 
rope has  attracted  the  competition  of  the  Kussian  oil 
fields  to  a  de2:ree  that  threatens  to  drive  American 
jietroleum  out  of  Europe  and  confine  its  market  to  this 
hemisphere ;  is  not  the  burden  of  the  Standard  felt 
by  the  producers?  In  the  depressed  condition  of  the 
crude  petroleum  business,  which  has  prevailed  under 
the  Standard  regime,  it  is  clear  that  the  extra  charges 
for  refining  and  transportation  have  been  assessed  in 
great  part  upon  the  producers,  to  say  nothing  of  their 
present  load  of  30,000,000  barrels  in  surplus  stock, 
which  might  have  been  marketed  if  the  trade  had 
been  free  from  this  monopoly.  The  essential  fact  is  that 
the  influence  of  the  Standard  has  made  oil  cheaper  to 
the  producers  and  dearer  to  the  consumers ;  and  both 
differences  have  gone  mainly  into  its  own  pockets. 

The  illusory  character  of  the  railway  policy  of  main- 
taining high  rates  by  reducing  them  to  a  favored  ship- 
per was  never  more  clearly  exposed  than  in  this  case. 
The  theory  was  that  by  giving  the  Standard  an  advan- 
tage on  a  part  of  the  petroleum,  the  rates  on  the  bulk 


100  The  Railways  and  the  Rejpiiblic. 

of  tbat  business  could  be  sustained;  bufc  the  actual 
effect  was,  that  the  discrimination  in  favor  of  the  Stand- 
ard excluded  all  other  shipments,  and  put  the  reduc- 
tion into  effect  on  the  entire  freight  business  of 
the  petroleum  trade.  This  result  of  the  railway  offi- 
cials' method  of  sustaining  rates  suggests  the  question 
whether  the  conduct  of  the  railway  business  of  the 
country  does  not  illustrate  the  Irish  bull  on  a  gigantic 
practical  scale.  It  is  worth  while  to  remember,  too, 
that  the  claim  of  the  independent  petroleum  interests 
was  not  for  low  rates,  but  for  equal  ones.  Although 
the  old  rates  were  shown  by  subsequent  events  to  be 
excessive,  the  independent  refiners  could  have  paid 
them  and  maintained  their  existence  if  no  one  else 
had  obtained  lower  ones ;  nor  could  the  Standard  ever 
have  created  its  monopoly,  except  by  the  differential 
rates  which  enabled  it  to  shut  every  one  else  out  of  the 
market.  The  arraignment  of  the  railway  combination, 
with  the  Standard  as  its  binding  power,  is  not  an  at- 
tack upon  remunerative  railway  rates ;  it  is  an  attack 
upon  low  rates  exceptionally  made  in  favor  of  a  single 
shipper. 

An  error  no  less  serious  is  exposed  by  this  case  in 
the  favorite  argument  of  the  railway  managers  that  it 
is  for  the  interest  of  their  corporations  to  give  better 
freight  rates  to  large  shippers  than  to  smaller  firms. 
The  practical  mockery  of  this  theory  which  builds  up 
the  business  of  favored  shippers  to  immense  propor- 
tions by  preferential  rates,  and  then  tells  those  who 
ask  for  equal  rates  that  their  business  is  less  impor- 
tant than  that  of  their  fiivored  rivals,  "svas  never  more 
unblushingly  exhibited  than  in  the  case  of  the  Stand- 
ard.     The   question   is   not,   as   it   is   generally   put. 


The  History  of  a  Commercial  Crime.  101 

whether  it  is  better  to  get  a,  shipment  of  a  hundred 
cars  from  one  firm  than  one  of  ten  cars  from  another. 
It  is  whether  it  is  better  to  get  a  shipment  of  a  hundred 
cars  from  a  single  firm  than  shipments  of  a  hundred 
cars  from  ten  smaller  ones.  If  the  Standard  had  not 
been  raised  to  its  present  tyrannical  power  there  would 
have  been  in  its  place  an  independent  interest  of  fifty 
or  a  hundred  firms  shipping,  in  the  aggregate,  as  great 
or  a  greater  amount  of  freight.  Aside  from  the  public 
aspect  of  the  question,  there  is  no  doubt  that  it  would 
have  been  better  for  the  railways  to  carry  the  nat- 
ural shipments  of  such  a  legitimate  business  than  to 
depend  upon  the  dictates  and  favors  of  a  monopoly. 
It  has  often  been  shown,  and  notably  in  the  report  of 
the  Hepburn  Committee  to  the  Ne^v  York  Legislature, 
that  in  endowing  the  Standard  with  railway  favors  out 
of  which  it  has  made  a  hundred  millions  of  dollars  in 
ten  years,  the  policy  of  the  railway  managers  was  prac- 
tically no  less  a  betrayal  of  the  interests  of  their  share- 
holders than  it  was  an  assault  on  public  right  and  jus- 
tice. 

I  must  acknowledge  that  the  argument  which  places 
the  combination  in  the  li2:ht  of  one  for  the  benefit  of 
the  refining  interests  has  more  foundation,  in  the  as- 
sured fact  that  it  has  been  exceedingly  beneficial  to 
the  members  of  the  refining  interests  which  formed  that 
corporation.  It  is  true,  too,  that  several  firms,  after 
they  had  been  brought  nearly  or  quite  to  insolvency 
by  the  pressure  of  the  monopoly,  were  able  to  make 
terms  that  restored  their  fallen  fortunes.  To  these,  as 
well  as  to  the  partners  in  the  corporation,  the  Stand- 
ard brought  greater  or  less  prosperity.  But  to  the 
other  members  of  the  refining  interests  of  1874,  who 


102  'The  'Jiailways  and  the  RejpuUic. 

were  driven  into  a  sale  of  their  works  at  a  sacrifice,  or 
found  their  business  career  terminated  by  the  still  less 
satisfactory  sale  of  their  property  in  bankruptcy,  the 
benefits  of  the  Standard's  control  of  the  refining  in- 
terest are  not  so  apparent.  Suppose  that  a  monopoly 
had  been  created  by  the  organization  of  the  entire  oil 
trade  in  a  single  combination,  with  equitably  distrib- 
uted shares  to  each  member.  That  mio-ht  have  re- 
suited  in  greater  profits  to  them  all  for  a  time.  Such 
a  combination,  if  it  were  possible  in  an  independently 
organized  industry — which,  happily,  it  is  not — would 
work  no  injustice  to  its  members.  It  would  require 
attention  from  the  public  point  of  view,  and,  if  armed 
with  the  power  to  crush  all  fresh  competition,  would 
contain  a  threat  to  the  public  interests.  But  the  prev- 
alent fashion  of  pools  and  combination  is  not  directly 
concerned  in  this  case.  The  Standard  was  not  even 
an  equitably  organized  trade-pool.  It  was  a  combina- 
tion of  a  part  of  an  interest  which  said  to  some  of  the 
members  of  the  business :  "  Come  under  our  rules ; 
conduct  your  business  exactly  as  we  direct  you ;  run 
your  refineries  when  we  tell  you  to  run ;  buy  and 
sell  only  by  our  orders.  If  you  obey  our  commands 
in  all  respects,  and  consent  to  our  absorbing  the  bulk 
of  the  immense  profits  which  our  combination  secures, 
we  will  guarantee  you  a  moderate  prosperity.  Refuse 
and  you  shall  be  ruined."  To  the  rest  of  the  trade 
it  said,  by  its  actions,  that  they  should  be  ruined  in 
any  event,  and  by  the  help  of  the  railways  it  made 
good  its  threats.  An  increase  of  wealth  to  the  amount 
of  $70,000,000  or  $80,000,000  in  ten  years  is,  proba- 
bly, more  than  the  old  interests  would  have  secured  if 
they  had  retained  their  separate  existence.     But  when 


The  History  of  a  Commercial  Crime.  103 

this  wealth  is  divided  up  by  giving  $25,000,000  to  oue 
firm,  $250,000  to  another,  and  awarding  utter  extinc- 
tion to  a  third,  it  may  be  doubted  whether  the  trade, 
as  a  whole,  is  sufficiently  repaid  for  the  surrender  of 
independence  and  uprightness.  Business  which  is  con- 
ducted on  the  basis  of  tryins:  to  mve  consumers  the 
most  for  their  money  is  a  public  benefit.  That  which 
is  managed  so  as  to  increase  the  cost  of  the  products 
to  the  consumers  and  to  extort  the  greatest  profit 
from  them  is  a  public  curse.  It  would  have  been  bet- 
ter for  the  refiners  of  this  country  to  retain  their  posi- 
tion of  doing  a  public  service  for  all  the  money  they 
got,  than  to  expose  their  trade  to  the  charge  of  extort- 
ing immense  profits  by  fraud  and  force.  But  when 
the  profit  that  was  obtained  by  the  favoritism  of  the 
railwaj'S  is  distributed  in  the  form  of  immense  wealth 
to  one  portion  of  the  trade,  moderate  pay  to  another 
portion  for  conforming  to  the  demands  of  the  combi- 
nation, and  poverty  to  those  who  retained  their  inde- 
pendence, the  claim  that  the  Standard  combination 
was  for  the  benefit  of  the  refining  interests  appears  to 
be  audacious  if  it  is  not  sarcastic. 

Tlje  complete  answer  to  all  such  arguments  in  favor 
of  railway  pools,  discriminations,  and  trade  combina- 
tions, is  given  by  the  fiicts  in  the  history  of  the  Stand- 
ard Oil  Company.  By  whatever  plea  of  expediency 
it  may  be  supported,  a  policy  is  false  which  establishes 
a  monopoly  on  the  ruins  of  independent  and  legiti- 
mate competition.  However  splendid  pecuniary  prizes 
may  be,  they  are  a  public  wrong  when  they  are  made 
rewards  for  subservience  or  amassed  by  conspiracy  and 
dishonesty.  Tliese  are  the  results  of  the  comljinations 
which  gave  the  Standard  its  remarkable  increase  of 


104  The  Bailways  and  the  Bejmblic. 

wealth.  Gloss  over  the  methods  used  by  whatever 
specious  arguments  the  railway  advocates  please,  they 
built  up  a  great  monopoly  and  crushed  out  an  indepen- 
dent trade.  They  were  conceived  in  favoritism  and 
dishon'esty,  brought  forth  with  the  aid  of  corruption 
and  conspiracy,  and  in  full  growth  and  maturity  are 
a  curse  to  the  independence  and  integrity  of  the  na- 
tion. If  the  Western  bandits  whose  career  has  been 
so  sensational  had  been  able  to  amass  as  great  Avealth 
as  the  Standard,  by  highway  robbery,  their  riches 
would  not  have  demoralized  the  public  more  than  the 
success  of  this  corporation.  They  would,  at  least,  have 
secured  their  gains  at  the  risk  of  their  lives.  But  the 
wealth  of  the  Standard  represents  no  such  courageous 
dishonesty.  It  represents  the  reward  which  can  be 
obtained  by  securing  the  favor  of  the  railways  to 
crush  out  open  and  honest  competition ;  by  bribing 
legislators  to  prevent  equitable  laws ;  and  by  employ- 
ing all  the  powers  of  corruption  and  intimidation 
which  immense  hoards  of  money  possess,  to  maintain 
arbitrary  power  and  illegal  monopoly.  Apart  from 
the  encouragement  it  gives  to  similar  attacks  upon  the 
independence  of  other  industries,  the  success  of  greedy 
and  unscrupulous  wealth  cannot  fail  to  be  demoralizing 
in  all  its  influence.  AYhen  gigantic  dishonesty  meets 
with  such  gigantic  success,  what  wonder  is  it  that 
more  ordinary  forms  of  the  same  evil  prevail?  In  all 
its  direct  and  indirect  results,  as  the  wrecker  and  de- 
stroyer of  legitimately  obtained  prosperity,  as  a  mo- 
nopoly of  an  essential  industry,  and  as  a  corrupter  of 
public  and  business  morals,  the  Standard  Oil  Company 
is  an  unmitigated  evil  and  a  public  curse. 

The  infliction  of  that  curse  upon  the  nation  must 


TliC  History  of  a  Commercial  Crime.  105 

be  charged  to  the  policy  which  unites  the  railways  in 
efforts  to  suppress  competition  among  themselves,  and 
to  give  favored  shippers  a  monopoly  of  the  traffic  by 
discriminating  rates.  For  reducing  a  thriving  and  in- 
dependent industry  to  ruins  under  the  feet  of  the 
Standard  Oil  Company ;  for  giving  that  monopoly  the 
power,  not  only  to  dominate  the  petroleum  trade,  but 
to  intimidate  and  conquer  the  very  railways  which 
had  built  it  up;  and  for  lifting  it  to  a  position  in 
which  it  has  been  reputed  to  control  at  least  one  state 
lefrislature,  two  seats  in  the  United  States  Senate,  and 
a  cabinet  officer  in  the  national  administration — for  all 
this  the  four  trunk  lines  are  responsible.  If  the  New 
York  Central  and  Erie  railroads  had  maintained  jus- 
tice in  their  rates,  the  present  tyrant  of  the  petroleum 
trade  could  never  have  exceeded  its  original  position 
as  a  merely  local  corporation.  If  the  Pennsylvania 
Kailroad  had  given  the  refiners  along  its  line  the  same 
opportunity  for  cheap  transportation  that  it  gave  the 
Standard,  the  independent  industry  of  Pittsburgh 
would  to-day  hold  the  Standard  in  check  by  its  com- 
petition. If  the  Baltimore  and  Ohio  Railroad  had 
kept  up  its  character  as  a  competing  route,  the  same 
industry  could  have  continued  its  struggle  against  mo- 
nopoly on  equal  terms.  It  took  the  united  action  of 
all  four  trunk  lines  to  force  the  petroleum  industries 
of  New  York,  Boston,  Pliiladelphia,  and  Pittsburgh 
into  complete  subjection  to  the  rule  of  the  Standard 
combination.  These  four  corporations,  the  exemplars 
and  leaders  of  the  railway  system  of  the  country,  fur- 
nished to  that  conspiracy  against  independent  com- 
merce and  free  competition  the  active  strength  and  su2> 
l')ort  which  made  its  success  possible.     Without  their 


106  The  Railways  and  the  Repvhlic. 

steady  and  persistent  violation  of  the  great  rule  of 
equal  privileges  to  all  shippers,  the  project  for  the 
subjugation  of  the  petroleum  trade  would  have  died 
still-born.  In  assigning  to  them  the  responsibility 
for-  such  an  attack  upon  commercial  liberties,  is  it  too 
severe  to  declare  that  the  four  leading  railways  of  the 
country  are  guilty  of  the  great  commercial  crime  of 
the  last  decade  ? 


CHAPTER  IV. 

THE    LAW   AIS'D   THE    EAILWATS. 

A  PUBLIC  wrong  may  be  made  to  bear  the  semblance 
of  a  private  right.  Thus  railway  discriminations  are 
defended  by  claiming  for  the  railways  the  same  right 
that  any  citizen  has,  to  perform  service  for  one  customer 
cheaper  than  for  another.  A  merchant  is  at  liberty  to 
sell  to  A  at  a  lower  price  than  to  B ;  he  will  sell  to 
the  buyer  of  $20,000  worth  at  a  lower  price  than  to 
the  buyer  of  $1000  worth.  "Why,  then,"  asks  the 
railway  advocate,  "  have  not  the  railway  managers  the 
same  right  to  give  one  shipper  better  rates  than  an- 
other? We  have  seen  that  such  discriminations  are 
often  forced  upon  them.  These  are  business  corpora- 
tions conducted  for  the  purpose  of  making  money,  and 
as  a  merchant  secures  a  large  transaction  by  a  lower 
rate,  what  justice  or  reason  is  there  in  refusing  the  rail- 
ways a  like  privilege?"  This  argument  has  been  quali- 
fied in  recent  discussions  by  the  admission  that  no 
"unjust  discriminations"  should  be  allowed.  But  the 
principle  of  the  plea  demands  a  short  examination.    . 

If  any  merchant,  manufacturer,  or  broker  had  the 
power  to  make  discriminations  which  would  affect  the 
prosperity  of  whole  communities,  or  buikl  up  fortune 
for  one  person  out  of  the  adversity  of  his  rivals,  ought 
not  the  law  to  take  away  that  power?  If  a  Stewart 
or  Astor  had  obtained  such  a  control  of  trade  that  he 


108  The  Railways  and  the  Hejpublic. 

could  compel  western  New  York  to  pay  more  for  its 
cottons,  its  clothing,  or  its  groceries  than  Illinois  or 
Iowa,  or  could  sell  to  a  select  few  of  the  thousands  of 
retail  merchants  at  prices  that  would  give  them  a  prac- 
tical monopoly,  would  the  public  necessity  for  abolish- 
ing such  a  dangerous  power  be  hindered  by  any  plea 
of  individual  rights?  The  privileges  of  feudal  lords 
scarcely  involved  greater  control  over  the  welfare  of 
the  people  than  such  mastery  of  their  commercial  life ; 
but  the  civilized  world  abolished  them  hundreds  of 
years  ago.  Under  our  institutions  there  can  be  no 
private  property  in  the  liberties,  lives,  or  welfore  of  the 
people.  I  cannot  believe  that  after  we  have  proved, 
by  a  century  of  experience,  the  wisdom  of  abolishing 
all  royal  or  feudal  control  over  the  prosperity  and  free- 
dom of  the  masses,  we  shall  permit  a  more  arbitrary 
and  irresponsible  sway  to  be  established  over  our 
commercial  liberties  either  by  corporate  or  individual 
plutocrats. 

But  the  fact  that  no  individual  merchant  ever  has 
obtained  such  a  power,  marks  the  difference  between 
the  position  of  the  greatest  private  trader  and  that  of 
a  railroad  corporation.  Let  Stewart  and  Claflin  favor 
one  dealer  as  they  will ;  others  can  get  relief  by  deal- 
ing with  other  merchants — and  if  the}^  cannot  buy  else- 
where as  cheaply  as  their  favored  rival  does  of  the  great 
merchant,  the  loss  comes  out  of  the  latter's  pocket.  As 
long  as  the  dominant  power  holds  no  franchise  under 
wdiich  it  can  throw  the  cost  of  its  favors  on  those 
against  whom  it  discriminates,  no  public  rights  are 
attacked.  No  merchant  can  hold  such  a  power  unless, 
as  we  have  seen,  the  monopoly  is  placed  in  his  hands 
by  the  favor  of  the  railways.     This  contrast  between 


The  Law  and  the  Railways.  109 

tine  ability  of  the  greatest  and  most  successful  traders 
and  that  of  the  weakest  and  most  bankrupt  railway  in 
the  exercise  of  discrimination,  illustrates  the  differences 
in  the  sources  of  their  powers  and  in  their  public  obliga- 
tions. The  merchant  owes  his  wealth  and  importance 
in  the  market  to  his  own  ability  and  industry,  and, 
however  great  that  wealth  and  power  may  be,  the 
competition  of  others  is  a  perpetual  safeguard  against 
fovoritism  which  will  build  up  one  class  or  locality  at 
the  expense  of  others.  The  railway  owes  its  existence 
and  creation  to  the  state.  Its  power  over  transporta- 
tion rates  does  not  come  from  ability  or  industr}^,  but 
begins  as  soon  as  the  tracks  are  laid,  and  continues 
throughout  its  career,  no  matter  how  extravagantly  or 
recklessly  it  may  be  managed.  It  is  the  legislation 
which  gives  it  existence  and  enables  it  to  build  and 
control  the  road  from  which  the  power  to  make  dis- 
criminations is  drawn.  It  is  a  vital  point  that  the  rail- 
ways occupy  an  entirely  exceptional  and  unique  posi- 
tion, (1)  in  that  they  alone  can  make  discriminations  so 
as  to  affect  public  interests,  and  (2)  in  that  they  derive 
this  power  entirely  from  the  legislation  which  has  given 
them  existence.  The  character  of  that  legislation  has 
been  such  as  to  justify  the  imposition  of  restraints  upon 
the  railways  wherever  they  threaten  the  public  interest. 
It  rests  upon  powers  which  can  be  wielded  only  for 
public  purposes;  and  the  employment  of  which,  in 
the  creation  of  the  railways,  clearly  implies  that  they 
were  created  for  tlie  benefit  of  the  people,  that  the 
public  welfare  is  their  supreme  end.  The  right  of  the 
railway  to  exist  rests  upon  its  character  as  a  puljlic 
highway.  This  character  is  the  sole  justification  of  the 
exti'aordinary  acts  of  power  by  which  the  state  gave 


110  The  Hallways  and  the  Rejpvhlic. 

tlie  railways  existence,  and  of  the  legislative  favors  by 
whicli  the  railway  system  has  been  developed.  In  tbis 
character  too  lies  the  foundation  of  the  public  obliga- 
tions of  the  railways.  Having  accepted  the  advantages 
and  powers  which  public  policy  grants  to  aid  the  con- 
struction of  public  highways,  they  are  bound  to  perform 
the  duties  which  attach  to  that  character  and  to  respect 
the  public  rights  affected  by  it. 

The  agency  of  government  in  giving  corporate  exist- 
ence to  the  railwa3's,  and  in  aiding  the  construction  of 
a  large  number  of  them  by  subsidies  and  public  loans, 
is  enough  to  support  the  claim  that  the  public  interest 
should  be  paramount  in  controlling  their  operations. 
But  a  farther  exertion  of  governmental  power  has  been 
made  in  behalf  of  every  raihvay  in  the  country ;  one 
which  is  requisite  to  their  construction,  and  which  fully 
stam2:)S  that  construction  as  a  public  purpose  and  not 
a  private  business  or  speculation.  The  state  has  exer- 
cised its  sovereignty  in  appropriating  and  condemning 
land  for  the  right  of  way,  without  the  consent  of  the 
owners. 

The  right  of  eminent  domain,  or  the  power  of  the 
government  to  take  private  property  fur  public  pur- 
poses without  the  consent  of  the  owner,  upon  such  com- 
pensation as  may  be  fixed  by  legal  process,  is  one  of 
the  supreme  powers  of  government.  It  is  founded 
upon  the  principle  which  holds  states  together,  that 
private  rights  must  always  be  held  subordinate  to  the 
public  need.  But  this  principle  implies  that  the  power 
in  question  cannot  be  exerted  save  for  a  public  pur- 
pose. The  right  of  every  man  to  hold  his  property  at 
whatever  price  he  chooses,  or  to  refuse  to  sell  it  at  any 
price,  is  indefeasible  against  any  right  except  that  of 


The  Law  and  the  Railways.  Ill 

the  government  for  public  purposes.  If  the  state 
should  force  one  man  to  sell  his  property  at  a  valua- 
tion for  another's  private  use,  this  would  be  an  act, 
not  of  sovereignty,  but  of  tyranny.  But  it  is  an 
equitable  and  beneficial  practice  of  every  civilized  gov- 
ernment to  appropriate  the  land  of  private  owners, 
upon  just  compensation,  for  such  public  uses  as  the 
construction  of  state  buildings,  or  of  public  highways. 
Since  the  days  of  theEoman  empire, the  establishment 
of  public  highways  has  been  recognized  as  a  function  of 
the  government  in  every  civilized  state;  and  it  is  for 
this  end  that  the  power  of  the  state  has  been  conferred 
upon  the  railway  companies  to  seize  the  land  needed 
for  their  right  of  AA'ay.  Before  railways  were  thought 
of,  the  same  power  had  been  granted  to  companies  for 
the  construction  of  highways  in  the  form  of  canals, 
turnpikes,  or  plank  roads,  and  for  the  improvement  of 
natural  water-courses.  The  grant  in  tlie  same  manner, 
of  the  power  of  seizure,  under  the  state's  eminent  do- 
main, shows  that  the  railway  was,  from  the  first,  recog- 
nized by  the  law  as  a  public  highway,  in  exactly  the 
same  legal  relation  to  the  state  as  the  canals  and  turn- 
pikes. This  exercise  of  sovereign  po^ver  was  absolutely 
necessary  for  the  creation  of  the  i-ailway  system.  Ex- 
perience shows  that  no  railroad  twenty-five  miles  in 
length  can  be  built  without  the  resort  to  the  power  of 
the  state,  for  there  are  always  some  proprietors  who 
demand  an  exorbitant  price  or  altogether  refuse  to  let 
the  railway  pass  over  their  property.  jSTo  railroad  of 
greater  importance  than  a  mere  switch  ever  has  been 
or  ever  can  be  built  without  invoking  the  sovereignty 
of  the  government  in  its  behalf  * 

*  Within  the  personal  knowledge  of  the  writer  a  number  of  private 


112  The  Railways  and  the  BepuUic. 

Not  only  was  it  the  plain  purpose  of  legislation  to 
establish  public  highways  by  these  acts,  but  that  Avas 
the  only  purpose  for  which  the  power  could  be  exerted. 
This  is  a  constitutional  country  in  which  the  rights  of 
the  citizen  are  carefully  guarded  against  encroachment, 
even  by  the  legislature,  and  any  attempt  to  appropriate 
property  for  other  than  public  uses  would  be  uncon- 
stitutional. This  is  a  point  of  vital  importance.  Some 
writers  seem  to  imagine  that  the  railways  are  not  sub- 
ject to  the  restrictions  and  obligations  of  public  high- 
ways, but  own  and  control  their  tracks  as  absolutely 
as  a  manufacturing  corporation  owns  its  mill.  This 
view  ignores  the  rights  of  private  ownership.  If  the 
state  should  assume  to  empower  A  to  take  B's  land  by 
legal  process,  paying  the  price  assessed  by  a  jury,  and 
to  use  it  for  his  private  residence  or  private  business, 
every  one  would  see  in  this  a  most  arbitrary  and  out- 
rageous abuse  of  power,  and  every  court  would  un- 
hesitatingly pronounce  the  act  unconstitutional  and 
void.  Yet  this  is  exactly  the  claim  of  the  railways, 
when  they  assert  their  independent  ownership  of  tracks 
and  rights  of  way  that  have  been  obtained  by  this  ex- 
ertion of  the  sovereign  power.  If  it  be  true  that  their 
roads  are  not  public  highways,  then  they  have  no  legal 
right  where  they  are,  and  could  be  dispossessed  of 
their  tracks  by  an  appeal  to  the  courts.  The  power  of 
the  state  to  take  the  land  of  private  citizens  can  onl}?- 
be  exerted  for  public  uses;  and  the  sole  public  use  of 
the  railways  is  as  highways  for  merchandise  and  pas- 
capitalists  wished  to  build  a  railway  to  their  coal  mines,  through  ten 
miles  of  country  -where  they  were  well  known  and  very  influential.  In 
order  to  avoid  the  trouble  of  incorporating  themselves,  they  tried  to  buy 
the  right  of  way  by  private  negotiations,  but  were  forced  to  resort  to  in- 
corporation and  the  right  of  eminent  domain. 


The  Law  and  the  Railways.  113 

sengers.  The  railway,  no  doubt,  when  conducted  with 
due  regard  to  the  public  requirements,  is  such  a  high- 
way as  truly  as  the  turnpike.  If  it  were  not,  the  legis- 
lative acts  under  which  the  railway  system  was  built 
up  would  be  null  and  void,  and  the  entire  railway 
S3'stem  would  be  a  mere  product  of  violence  and  fraud, 
without  legal  justification. 

This  principle  was  recognized,  formally  at  least,  by 
Messrs  Vanderbilt  and  Jewett,  in  their  letter  to  the 
New  York  legislative  investigating  committee.  They 
declared  that  "  it  is  the  primary  duty  of  the  state  to 
furnish  '  highways,'  whether  they  be  the  road,  the  canal, 
the  turnpike,  or  the  railroad,  the  state  alone  havin^r 
the  risjht  of  '  eminent  domain.'"  But,  notwithstandino- 
this  admission,  many  Avriters  in  the  interest  of  the  rail- 
ways have  denied  that  they  are  public  highways.  This 
denial  is  indeed  necessary  to  their  consistency,  if  they 
deny  the  i-ight  of  the  state  to  regulate  these  highways 
in  the  public  interest.  Mr.  Geoi'ge  Ticknor  Curtis,  the 
most  eminent  of  these  writers,  brought  forward  the 
theory  of  private  ownership,  in  1880,  denying  the  as- 
sertion of  Judge  Black  that  railways  are  public  high- 
ways and  consequently  held  subject  to  public  uses. 
His  claim  that  the  railways  must  be  exempt  from  legis- 
lative regulation  has  been  echoed  by  the  advocates  and 
organs  of  the  railway  theory.  A  very  respectable  ex- 
ample of  this  class  was  Mr.  W.  F.  Crafts,  Avho,  by  giv- 
ing a  fair  statement  of  the  claim  that  the  exercise  of  the 
right  of  eminent  domain  in  behalf  of  the  railways  invests 
them  with  the  character  of  public  highways,  earned  the 
right  to  a  tolerant  hearing.  But,  while  stating  the  case 
fairly,  he  could  not  give  up  his  preconceived  ideas  of 
private  ownership.    Admitting  that  the  view  we  main- 


114  The  Railioays  and  the  Republic. 

tain  may  be  plausible  in  theory  "and  evolved  from  some 
old  principles  of  law,"  he  declared  that  it  is  not  "  true  in 
fact."  In  one  sense  it  may  be  untrue  in  fact.  The  rail- 
ways, as  generally  conducted,  may  correctly  be  asserted 
to  have  lost  the  impartial  character  and  freedom  of  com- 
petition which  are  the  essential  features  of  public  high- 
ways. This  is,  indeed,  the  principal  count  of  the  indict- 
ment against  them:  that  they  have  changed  their  char- 
acter, betrayed  the  public  purpose  for  which  they  were 
established,  and  adopted  practices  and  methods  wholly 
inconsistent  with  the  nature  of  public  highways.  But 
Mr.  Crafts  means  that  it  is  "  untrue  in  fact "  that  the  rail- 
ways rest  upon  the  legal  foundation  of  the  public  high- 
way. He  has  attempted  to  prove  this  by  asserting  the 
legislative  power  of  "  the  necessities  of  modern  prog- 
ress," ■^*  which,  in  his  opinion,  have,  within  the  last 
fifty  years,  made  it  constitutional  and  right  for  the 
state  to  take  away  the  property  of  A  and  give  it  to  B 
for  tlie  latter's  private  use  and  behoof — provided  al- 
ways that  B  is  a  railway  corporation.  But  this  argu- 
ment is  two-edged  and  cuts  both  ways.  If  the  neces- 
sities of  modern  progress  justify  the  invasion  of  the 
rights  of  private  property  for  the  benefit  of  one  inter- 
est, they  will  justify  a  similar  invasion  of  those  rights 
for  the  benefit  of  a  greater  interest.  It  is  as  necessary 
to  keep  the  avenues  of  commerce  open  to  competition 

*  '•  The  necessities  of  modern  progress  rendered  a  modification  of  old 
theories,  and  even  of  old  principles,  inevitable  ;  and  since  the  introduction 
of  railroads,  tlie  idea  that  private  property  taken  for  the  purpose  of  travel 
in  a  peculiar  manner  and  under  new  conditions  is  a  public  highway,  is 
no  longer  tenable  and  in  practice  is  not  recognized.  The  old  theory  of 
the  rights  of  the  public  in  such  a  road  was  necessarily  modified  in  prac- 
tice, though  it  still  lingered  in  the  minds  of  some  jurists." — W.  F.  Cbafts, 
Scribnefs  Monthly,  Oct.,  1881. 


The  Law  and  the  Bailvjays.  115 

and  to  put  down  monopolies  as  it  is  to  furnish  cheap 
rights  of  way  to  raih'oad  corporations.  Grant  that  such 
a  necessity  may  take  away  the  property  of  citizens  and 
make  it  the  property  of  corporations,  it  may  well  go 
a  step  further  and  take  away  the  property  of  the  cor- 
porations to  be  the  property  of  the  state.  Certainly  if 
modern  progress  can  amend  constitutional  principles 
and  invade  the  right  of  property,  it  can  do  so  to  no 
better  end  than  to  guard  the  freedom  of  commerce  and 
promote  the  welfare  of  the  public. 

This  theory  of  the  private  proprietorship  of  the  rail- 
ways is  founded  by  Mr.  Crafts,  one  of  its  typical  advo- 
cates, on  the  practice  of  the  present  times.  "The  old 
theory  of  the  right  of  the  public  in  such  a  road,"  he  says, 
"  was  necessarily  modified  in  practice."  It  makes  a  vital 
difference,  as  to  the  pertinence  and  accuracy  of  this 
statement,  w^hose  practice  it  is  that  is  supposed  to  re- 
peal fundamental  and  time-honored  principles  of  law. 
It  is  true  that  the  practice  of  the  raihvays  does  no 
longer  recognize  the  principle  of  the  public  highway. 
But  does  the  practice  of  those  whose  private  interests 
lead  them  to  override  fundamental  principles  of  law 
amount  to  a  repeal  of  that  principle?  It  is  an  old 
principle  that  public  office  is  a  public  trust,  to  be  ad- 
ministered for  the  welfare  of  the  entire  nation.  If  this 
principle  has  not  been  recognized  in  practice,  and  office- 
holders have  violated  it,  using  their  offices  to  make 
money  or  to  strengthen  their  parties,  does  the  principle 
become  false?  Perhaps  the  effort  to  make  the  public 
interest  the  supreme  end  of  the  public  service  might 
be  met  by  the  assertion  that  the  public  interest  must 
be  made  subordinate  in  tlie  manafrement  of  the  jrovern- 
ment,  because  the  practice  of  the  politicians  in  office 


116  The  Railways  and  the  Eepullic. 

has  long  modified  the  old  theory,  and  made  the  offices 
the  property  of  political  rings.  Few  professional  poli- 
ticians have  the  assurance  to  adopt  such  a  view,  but 
it  is  exactly  parallel  to  the  claim  of  the  railways  to 
private  property  in  their  lines.  In  each  case  the  argu- 
ment is,  that  because  rights  and  public  obligations  have 
been  persistently  ignored,  therefore  the  principles  of  law 
on  which  those  ris^hts  and  oblisfations  rest  are  abol- 
ished. 

If  it  is  meant  to  assert  that  the  practice  "which  has 
abolished  these  principles  is  the  practice  of  the  courts 
and  legal  authorities,  the  assertion  is  incorrect.  The 
public  obligations  of  the  railways  may  rest  upon  "  old 
theories"  and  be  "evolved  from  old  principles  of  law," 
but  theories  and  principles  may  be  none  the  worse  that 
they  are  old  and  long  established.  The  old  theory, 
that  the  railway  is  in  its  legal  character  a  public  high- 
way, has  been  affirmed  in  its  clearest  and  most  positive 
form  by  the  highest  and  most  authoritative  judicial 
tribunals  of  the  land.  Old  principles  of  law  which 
have  been  declared  essential  and  fundamental  by  the 
Supreme  Court  of  the  United  States,  and  by  the  courts 
of  last  resort  in  New  York,  Pennsylvania,  Massachu- 
setts, Vermont,  and  North  Carolina  in  the  early  days, 
and  of  many  other  states,  including  a  reassertion  in 
the  United  States  Supreme  Court  in  the  later  stages 
of  railway  development,  claim  some  respect  in  the 
minds  of  the  public,  however  lightly  railway  advocates 
may  subordinate  them  to  imagined  necessities  of  mod- 
ern progress.  The  doctrines  which  were  laid  down  at 
the  beginning  of  the  railway  system  by  such  authori- 
ties as  Walworth,  Baldwin,  Shaw,  and  Black,  have  in 
its  later  and  greater  growth  been  reaffirmed  and  ap- 


The  Law  and  the  Railways.  117 

plied  by  Waite,  Strong,  Miller,  Clifford,  Agnew,  Mc- 
Creary,  Baxter,  and  Kedfield.  The  combined  author- 
ity of  the  higher  courts  and  the  recognized  text-books 
has  from  first  to  last  recognized,  as  a  fundamental 
principle  in  the  constitution  of  the  railways,  that  they 
were  created  by  sovereign  powers,  which  could  onl}^ 
be  exercised  for  public  uses,  and  which  made  the  pub- 
lic rights  the  supreme  obligation  in  their  administra- 
tion. 

It  is  a  pregnant  fact,  too,  that  the  strongest  and  most 
complete  assertion  of  the  view  that  the  railways  are 
public  highways,  has  been  given  by  the  courts  for  the 
benefit  of  the  railways  themselves.  The  earlier  cases 
all  arose  from  the  attempts  of  land-owners  to  resist 
the  seizure  of  their  land  by  the  railroads.  This  issue 
was  drawn  very  clearly  in  the  case  of  Beekman  vn.  The 
Saratoga  and  Schenectady  Railroad,  decided  by  Chan- 
celler  Walworth  in  1831.*  It  is  amusing  to  find  that 
in  this  case  the  same  argument  was  used  against  the 
railroad  which  is  no\v  offered  in  its  favor.  The  plain- 
tiff insisted  that  the  railway  could  not  be  a  public 
highway,  because  farmers  and  travellers  could  not  use 
their  own  vehicles  upon  it.  To  this  the  counsel  for 
the  railway  replied,  that  it  would  be  a  public  high- 
way for  the  vehicles  suited  to  it,  and  the  eminent 
jurist  who  decided  the  case  adopted  that  view  in  a 
decision  which  laid  down  in  clear  and  exhaustive 
terms  the  following  fundamental  principles :  "  (1) 
Railroads  are  public  improvements  for  which  the  leg- 
islature cau  authorize  the  appropriation  of  land  on 
just  compensation  to  the  owner;  (2)  the  privilege  of 
making  such  a  road  and  taking  tolls    tliereon  when 

*  3  Paige,  45. 


118  The  Railways  and  the  Hepuhlic. 

granted  to  an  individual  or  a  corporation  is  a  franchise 
subject  to  the  public  interest  and  under  legislative 
regulation ;  (3)  the  sovereign  power  could  not  take 
the  property  of  one  citizen  and  transfer  it  to  another, 
even  upon  full  compensation,  except  for  public  pur- 
poses, and  an  act  of  the  legislature  doing  so  would 
be  repugnant  to  the  Constitution  of  the  United 
States." 

The  same  principle  is  set  forth  still  more  decisively 
by  the  Supreme  Court  of  the  United  States  in  the  case 
of  Bonaparte  vs.  The  Camden  and  Amboy  Railroad.* 
The  ex-king  of  Spain  resisted  the  right  of  the  railway 
to  appropriate  his  land  for  its  tracks,  on  the  ground 
that  it  was  not  for  a  public  purpose,  but  for  the  use 
of  a  monopoly.  The  final  decision  of  the  case  by  the 
highest  tribunal  of  the  nation  clearly  laid  down  the 
principles  on  which  the  public  control  of  the  railwa3^s 
is  now  asserted.  The  opinion  of  Justice  Baldwin  fol- 
lowed out  the  precedent  already  instanced  by  holding 
that  "  a  road  or  canal  is  for  public  use,  w^hen  the  pub- 
lic have  the  right  of  passage  on  paying  a  stipulated, 
reasonable,  and  uniform  toll."  But  he  made  a  proviso 
W'hich  should  be  full  of  warning  to  the  railway  cor- 
porations of  the  present  day,  by  asserting  that,  "if 
the  toll  amounts  to  a  prohibition  it  is  a  monopoly  and 
the  road  is  not  public."  The  absolute  necessity  that 
the  road  should  be  a  public  highw^ay,  not  only  in  name 
but  in  fact,  was  also  affirmed,  and  the  court  declared 
that  if  the  law  was  open  to  the  objection  that  the 
road  w^ould  be  used  solely  for  the  private  benefit  of 
the  corporation,  the  objection  would  be  fatal,  "  as  it  is 
opposed  to  every  constitutional  principle  which  pro- 
*  1  Baldwin,  205. 


The  Law  and  the  Railways.  119 

tects  the  right  of  property,  to  take  from  the  hiwful 
owner  and  aj^propriate  it  to  the  private  use  of  another, 
or  a  private  corporation  for  its  own  use."  Such  a 
transfer  was  ruled  by  the  court  only  to  be  valid  when 
it  was  an  appropriation  to  a  public  use ;  and  if  the 
railways  succeed  in  establishing  the  theory  of  pri- 
vate ownership,  every  rod  of  their  tracks  must,  un- 
der this  decision,  revert  to  the  original  owners,  or  be 
held  in  defiance  and  usur^^ation  of  the  rights  of  pri- 
vate property  as  laid  down  by  the  highest  court  of 
the  land. 

Many  decisions  of  the  highest  state  courts  in  the 
early  days  of  the  railway  system  were  emphatic  in 
rejecting  the  idea  that  railways  could  be  anything  else 
than  such  highways.  This  was  done  in  the  interest  of 
the  railways  themselves.  The  railway  lawyers  saw 
that,  unless  their  public  character  was  made  indisput- 
able, their  very  life  would  be  imperilled  by  tlieir  in- 
ability to  take  the  land  necessary  for  their  tracks.  Tlie 
decisions  in  which  tliis  principle  has  been  repeated  by 
the  courts  of  Massachusetts,  Connecticut,  New  York, 
Vermont,  Pennsylvania,  Maryland,  North  and  South 
Carolina,  Ohio,  Iowa,  and  Minnesota  would  of  them- 
selves more  than  fill  this  volume ;  some  of  the  most 
important  of  the  earlier  decisions  were  made  by  the 
Supreme  Court  of  Pennsylvania.  It  is  significant  that 
while  the  Supreme  Court  of  Pennsylvania  is  now  con- 
sidered the  stronghold  of  the  great  railway  corporation 
of  that  state,  tlie  principles  laid  down  in  its  decisions 
of  1853  and  185G  liave  never  been  set  aside.  Tlie  first 
great  railway  question  decided  Ijy  this  court  was  that 
of  the  constitutionality  of  municipal  subscriptions  to 
aid  in  the  construction   of  railways,  and  Judge  Black 


120  The  Railways  and  the  liepublic. 

held  that  such  subscriptions  under  acts  of  the  legis- 
lature "were  constitutional,  solely  on  the  ground  that 
they  aided  the  construction  of  a  public  highway.*  Three 
years  later  the  same  court  gave  another  decision  involv- 
ing the  forfeiture  of  a  railway  charter,  in  which  the  ut- 
ter subordination  to  the  public  use  and  public  control 
of  all  property  taken  by  the  right  of  eminent  domain 
was  declared  in  the  strongest  terms.f  The  lands  for 
the  road,  as  the  court  said,  "  were  taken  for  public 
use;  otherwise  they  could  not  have  been  taken  at  all." 
The  principle  that  railways  were  public  highways  was 
declared  to  be  the  sole  justification  for  appropriating 
land,  for  making  municipal  subscriptions,  for  fixing 
tolls,  or  granting  to  corporations  or  individuals  the 
right  to  build  and  operate  such  roads.  "A  public 
highway,"  said  the  court,  "  is  not  private  property  any 
more  than  a  public  office,"  and  when  the  corpoi'ation 
forfeits  its  charter  "  by  misuser  or  abuse  of  its  corporate 
privileges,"  or  by  "  any  act  in  derogation  of  public 
right,"  the  public  lligh^vay  reverts  to  the  control  of 
the  state,  and  the  franchises  of  the  corporation  in  the 
road  are  extin2:uished. 

But  weare  told  by  the  railway  advocates  that  these  are 
old  theories,  and  that  the  necessities  of  modern  progress 
and  the  practice  of  the  latter-day  railway  system  has 
overruled  these  decisions  of  twenty-five  and  fifty  years 
ago.  It  becomes  a  question  of  intei'est  therefore  to  in- 
quire at  what  time  the  constitution-making  power  of 
modern  progress  overruled  the  decisions  of  the  supreme 
legal  tribunals.  That  rather  indefinite  judicial  influ- 
ence had    evidently  not  reversed  the  decision  of  the 

*  Sharpless  vs.  Mayor  of  Philadelphia,  21  Pennsylvania,  147. 
t  Erie  and  North  East  R.  R.  vs.  Casey,  2  Casey,  287. 


The  Law  and  the  Railvmys.  121 

older  courts  in  1869,  Avhen  Chief -justice  Eedfield,  in 
his  standard  work  on  the  law  of  railways,  reaffirmed 
and  sustained  by  a  host  of  authorities  the  three  prin- 
ciples: (1)  That  railways  are  public  highways;  (2) 
that  unless  they  are  public  highways  it  would  be  be- 
yond legislative  power  to  exercise  the  right  of  eminent 
domain  in  their  behalf;  and  (3)  that  the  railway  cor- 
porations obtain  from  the  exercise  of  that  right  only 
an  easement  in  the  land  condemned  for  their  use* 
Nor  had  the  change  taken  place  in  1872,  when  the 
Supreme  Court  of  the  United  States  repeated  the  doc- 
trine that  the  railway  is  a  public  highway  with  especial 
force  and  particularity  of  detail.f  The  declaration  of 
the  principle  in  this  case  is  the  more  significant  in  that 
it  was  made  by  Justice  Strong,  with  the  concurrence 
of  Justice  Field,  both  of  whom  took  the  side  of  the 
corporations  and  dissented  from  the  application  of 
practically  the  same  principle  in  the  more  famous,  but 
not  more  decisive.  Granger  cases.  In  the  first  case,  the 
principle  was  asserted  in  behalf  of  the  railways ;  as  it 
established  the  constitutionality  of  a  public  loan  in 
their  aid.  But  it  was  no  less  conclusive  in  its  assertion 
of  their  public  character  and  public  obligations.  Jus- 
tice Strong  not  only  declared  the  railroad  a  public 
highway,  but  asserted   that  the  right  of  eminent  do- 


*Redfiekl  on  Railways,  ch.  xi.  229,  says:  "That  railways  are  but  im- 
proved public  highways  and  are  of  such  public  use  as  to  justify  tiie  right 
of  eminent  domain  by  the  sovereign  in  their  construction  is  now  almost 
universally  conceded.  Williams  ts.  New  York  Central,  18  Baib.  222,  24G ; 
State  «s.  Rives,  5  Ired.  297;  Northern  Railway  r».  Concord  and  Clare- 
mont  Railway,  7  Foster,  183;  Bloodgood  ts.  M.  and  II.  Railway,  18 
Wend.  9,  and  14  Wend.  51 ;  1  Bald.  C.  C.  Reports,  205,  sec  also  page 
73  ;  3  Seld.  314." 

t  Olcott  rs.  Supervisors,  16  Wallace,  078. 


122  The  Railways  and  the  Republic. 

main  could  not  be  used  in  favor  of  a  railway  corpora- 
tion for  any  other  purpose.  As  if  to  forestall  the  plea 
that  the  railway  could  be  regarded  as  a  public  high- 
Avay  only  for  the  purpose  of  condemning  the  land, 
and  as  a  private  corporation  in  other  respects,  the 
language  is  decisive  that  the  claim  that  they  are 
"public  only  with  respect  to  the  power  of  eminent 
domain "  is  a  mistake.  "  In  their  very  nature  they 
are  public  highways."  This  decision,  uttered  by  the 
justices  who  are  now  regarded  as  the  most  emi- 
nent railway  judges,  decisively  refutes  the  idea  that 
the  public  character  of  the  railway  is  an  obsolete 
theory. 

This  doctrine,  first  established  in  behalf  of  the  rail- 
roads, has  been  reaffirmed  in  the  later  decisions,  both 
to  establish  their  leo-itimate  rio^hts  and  to  curb  their 
unwarranted  pretensions.  It  has  been  their  justifica- 
tion in  thousands  of  cases  in  which  the  land  of  private 
owners  has  been  taken  to  secure  rights  of  way  for 
railways.  It  has  been  asserted  as  authorizing  county 
and  municipal  subscriptions  to  aid  their  construction.* 
It  is  true  that  for  many  years  the  fundamental  prin- 
ciple was  so  far  forgotten  and  discarded  in  the  prac- 
tice of  the  railways  that  Judge  Black's  enunciation  of 
it  was  called  by  the  press  a  novel  and  extreme  doc- 
trine. That  it  was,  instead,  the  doctrine  on  which 
the  railway  system  was  ushered  into  existence  and  on 
which  its  entire  growth  was  based,  has  already  been 
shown.  It  seemed  novel  and  extreme  to  those  ■who 
inferred  from  the  neglect  and  defiance  of  the  law  by 
the  railway  corporations  that  it  did  not  exist.  Those 
who  have  examined  the  clear  rulino;s  of  the  high  courts 

*  Rogers  ts.  Burlington,  3  Wallace,  654. 


The  Law  and  the  Railways.  123 

by  whicli  the  legal  status  of  the  railways  was  defiDecl, 
or  noted  the  multitiule  of  cases  in  whicli  these  prin- 
ciples were  repeated,'^  know  that  they  are  neither 
novel  nor  obsolete,  but  that  they  form  the  legal  founda- 
tion on  which  the  railway  system  of  to-day  has  been 
built  up. 

It  is  well  to  note  here  that  the  rights  of  private 
property  are  the  very  foundation  of  the  claim  of  the 
public  for  the  restraint  and  regulation  of  the  railways. 
It  is  customary  for  railway  advocates  to  attack  this 
claim  as  ''an  assault  on  property  rights."  A  thorough 
comprehension  of  the  principles  laid  down  by  the 
courts  will  show  that  the  assault  on  property  rights  is 
made  by  the  opponents  of  railway  regulation.  Thou- 
sands of  miles  of  land  have  been  taken,  without  the 
owners'  consent,  to  furnish  tracks  for  the  railway.  If 
this  was  for  the  private  benefit  of  the  companies,  it 
was  simj)ly  taking  away  the  land  from  one  owner  and 
giving  it  to  another,  an  outrage  and  invasion  of  pri- 
vate rights  which  no  legislative  power  would  be  com- 
petent to  make ;  which,  as  the  Supreme  Court  of  Penn- 

*  If  the  somewhat  voluminous  citations  already  made  to  establish  the 
validity  of  this  important  le<?al  doctrine  should  be  deemed  insufficient, 
the  reader  can  find  them  reaffirmed  in  the  following  references  given  in 
Redfield  on  Railways,  and  sundry  other  opinions:  Williams  vs.  New 
York  Central,  18  Barb.  222,  246 ;  Northern  Railway  m.  Concord  and  Clare- 
mont  Railway,  7  Foster,  183 ;  Bloodgood  ts.  M.  and  H.  Railway,  18  Wend. 
9,  and  14  Wend,  51 ;  sec  also  3  Seld.  314 ;  Bradley  «».  New  York  and 
N.  H.  Railway,  21  Conn.  294;  Symonds  ts.  City  of  Cincinnati,  14 
Ohio,  147;  Embury  ts.  Conner,  3  Corns.  511 ;  Talcott  vh.  Township  of  Pine 
Grove,  1  Flippin,  144;  People  rs.  New  York  Central  Railway,  Daily  Reg- 
ister, February  10th,  1883;  Railway  Company  vs.  Maryland,  21  Wall, 
470;  Lumford  vs.  Stearns,  4  Cush.  61 ;  Prosser  t"s.  Wapallo  Company,  18 
Iowa,  327 ;  Slater  vs.  Boston,  C.  and  M.,  25  Vermont,  433.  Further  cita- 
tions are  made,  as  Redfield  says,  "  almost  to  infinity,"  but  the  reader  will 
be  of  opinion  that  these  are  sufficient. 


124:  The  Railways  and  the  Bepuhlic. 

sylvania  said,  "  would  be  a  rescript  and  not  a  law." 
The  denial  of  the  public  character  of  the  railway  de- 
prives the  railway  system  of  any  title  to  the  protec- 
tion of  the  law,  and  leaves  its  creation  and  preserva- 
tion a  mere  trespass.  It  is  only  as  public  highways 
that  the  existence  of  the  railways  can  be  reconciled 
with  the  rights  of  property.  The  actual  regulation 
and  control  of  these  highways  in  the  interests  of  the 
public  is  the  sole  method  by  which  these  rights  can 
be  vindicated.  It  does  not  help  them  to  recognize  the 
principle  in  theory  while  rejecting  it  in  practice.  It 
is  a  mere  paradox  to  say  that  the  railways  are  public 
highways  for  the  purpose  of  appropriating  the  land  of 
private  citizens  and  receiving  public  aid,  and  not  to 
regard  them  as  under  the  obligations  of  public  high- 
ways, to  grant  equal  and  reasonable  jjrivileges  of  trans- 
portation and  travel. 

That  this  is  still  the  controlling  principle  of  railroad 
law  is  shown  by  the  later  decisions.  In  the  first  place 
it  is  by  this  principle  that  the  building  of  some  sixty 
thousand  miles  of  railway  has  been  accomplished.  No 
ten  consecutive  miles  in  any  settled  section  of  the  coun- 
try could  have  been  built  without  invoking  this  prin- 
ciple in  order  to  condemn  private  property  for  public 
use.  Again,  recent  decisions  affirm  and  enforce  the 
right  of  the  legislature  to  authorize  the  use  of  public 
funds  by  counties  and  municipalities  in  aid  of  railways 
as  a  public  purpose.  There  are  cases,  too,  in  which 
the  right  of  the  railways  to  defy  this  principle  has 
been  challenged.  A  few  of  these  have  been  brought 
to  trial,  notwithstanding  the  tactics  of  the  railway 
counsel;  and  the  courts  have  declared  arbitrary  dis- 
criminations illegal,  and  have  awarded  damages  for 


The  Law  and  the  Railways,  125 

such  offences.  Finally,  there  are  successive  decisions 
by  the  Supreme  Court  of  the  United  States,  as  well  as 
the  state  and  circuit  courts,  in  which  the  full  right  of 
the  state  to  control  and  regulate  the  railways  and  fix 
the  rate  of  tolls  has  been  clearly  established.  In  these 
decisions,  it  is  true,  the  function  of  the  railways  as  com- 
mon carriers  is  made  more  prominent  than  their  func- 
tion as  builders  and  operators  of  public  highways. 
This  fact  has  contributed  to  turn  away  the  attention 
and  thought  of  the  public  from  one  side  of  the  twofold 
character  which  the  railways  sustain  in  their  relations 
to  the  community.  The  important  distinction  between 
these  relations  will  be  discussed  in  another  chapter. 
It  does  not,  for  our  purpose,  affect  the  weight  of  these 
decisions,  in  which  the  public  duties  and  obligations  of 
the  railways  are  founded  upon  the  principle  laid  down 
by  the  judges  of  the  preceding  generation,  that  they 
are  public  highways;  and  then  are  further  sustained 
by  showing  that,  as  common  carriers,  they  are  so  af- 
fected with  a  public  right  as  to  be  subject  to  govern- 
mental regulation  and  control. 

The  right  of  the  state  to  regulate  the  railways  has 
been  affirmed  by  numerous  decisions  of  the  highest 
state  and  federal  courts.  These  decisions  are  so  re- 
cent and  so  well  known  that  it  is  not  necessary  to  dis- 
cuss them  so  fully  as  the  earlier  and  more  fundamental 
ones.  Indeed,  they  only  apply  the  principles  previ- 
ously settled,  in  affirming  the  right  of  the  state  to  pre- 
vent abuses  and  to  regulate  the  operation  of  the  rail- 
ways. But  they  are  important  in  defining  the  powers 
of  the  state  in  detail  as  applied  to  the  developments 
of  the  modern  railway  system.  It  has  already  been 
said  that  the  conception  of  the  railway  as  a  public 


126  The  Railways  and  the  EepxibUc. 

highway  was  the  foundation  of  the  decision  of  the 
famous  Granger  cases  by  the  Supreme  Court  of  the 
United  States,  The  doctrine  is  not  indeed  specifi- 
cally affirmed  there.  But  the  omission  is  more  than 
supplied  by  the  distinct  declaration  of  the  principle 
made  by  the  same  court  four  years  earlier.  Although 
there  were  some  singular  changes  in  the  position  of 
the  members  of  the  Supreme  Court*  between  the  de- 
cision of  this  case  and  that  in  the  Granger  cases,  the 
'  latter  applies  the  principle  and  carries  it  further,  found- 
ing the  regulative  authority  of  the  government  upon  the 
public  use  or  interest  in  a  business,  without  reference 
to  the  exercise  of  the  right  of  eminent  domain  in  its 
establishment.  In  the  first  of  these  cases,  Munn  vs. 
Illinois,  the  Supreme  Court  held  that  an  act  of  the  leg- 
islature regulating  the  charges  of  grain  elevators  and 
warehouses  was  constitutional,  solely  on  the  ground  that 
the  state  may  regulate  any  class  of  business  which  has 
become  affected  ^vith  a  public  use.f  The  other  cases 
dealt  directly  with  the  power  of  the  state  over  the  rail- 
ways, and  in  all  these  cases  the  decision  unreservedly 
affirmed  the  power.    The  doctrine  ^vas  not  new.    Chau- 

*  It  is  noticeable  that  wliile  the  decision  in  Olcott  vs.  The  Supervisors, 
which  sustained  a  public  loan  in  aid  of  a  railway,  was  upheld  by  Justices 
Strong  and  Field,  on  the  ground  that  it  is  a  public  highway,  the  same 
judges  dissented  from  the  decisi<m  in  the  Granger  cases,  that  the  legis- 
lature could  regulate  the  charges  of  the  corporations.  On  the  other 
hand,  Chief-justice  Waite  and  Justice  Miller,  who  had  dissented  from  the 
first  decision,  delivered  and  sustained  the  rulings  in  the  five  cases  of  187G. 
This  contradictory  position  may  afford  an  explanation  of  the  absence  of 
any  reference  to  the  doctrine  of  the  public  highway  in  either  the  affirm- 
ing or  the  dissenting  opinions  in  the  Granger  cases. 

t  Munn  ts.  Illinois,  4  Otto,  113 ;  C.  B.  and  Q.  R.  R.  vs.  Iowa,  4  Otto,  155 ; 
Peik  rs.  C.  and  K  W.  R. ;  Winona  and  St.  Peters  vs.  Blake.  These  cases 
are  all  reported  together. 


The  Law  and  the  Railways.  127 

cellor  Walworth  had  asserted  it  as  early  as  1831.  In 
the  Camden  and  Amboy  case,  the  right  of  regulation 
on  the  part  of  the  state  had  been  recognized,  though 
not  perhaps  directly  affirmed,  by  the  United  States 
Supreme  Court.  In  the  Granger  cases,  however,  these 
rights  were  fully  declared,  and  some  important  details 
were  discussed.  In  some  of  them  the  subject  of  state 
and  inter-state  commerce  was  considered,  and  the  right 
of  a  state  to  re2;ulate  such  inter-state  commerce  as  af- 
fects  its  citizens,  in  the  absence  of  action  by  Congress, 
was  clearly  affirmed.  One  case  involved  the  meaning 
of  a  grant  of  power  "  to  fix  reasonable  rates,"  and  it 
was  held  in  that  and  in  the  next  case  that  it  lies 
wholly  with  the  legislature  to  determine  what  rates 
are  reasonable.  Another  decision  gave  an  indirect  as- 
sent to  the  assertion,  made  by  the  supreme  court  of  a 
state,  that  a  legislature  cannot  alienate  its  rio-ht  of  resr- 
ulating  a  corporation  intrusted  with  the  operation  of 
a  public  highway. 

The  regulation  of  the  railways  by  the  state  has  been 
most  frequently  opposed  by  the  claim  that  the  char- 
tered rights  of  the  corporations  are  violated  by  it. 
Commencing  with  the  declaration  of  Chancellor  Wal- 
worth that:  "The  legislature  may,  from  time  to  time, 
regulate  the  use  of  the  franchise  and  limit  the  amount 
of  the  toll  which  it  shall  be  lawful  to  take,  unless  they 
have  deprived  themselves  of  that  power  by  a  legisla- 
tive contract  with  the  owners  of  the  road,"  tlie  ques- 
tion arises:  first,  what  constitutes  such  a  contract;  and 
second,  have  any  sucli  contracts  been  made  1)y  the  leg- 
islatures with  the  i-ailway  companies?  In  regard  to 
this  reason  and  law  ag:ree  that  the  ri^rht  of  tlie  state 
to  regulate  its  public  higliways  cannot  be  easily  for- 


128  The  Bailways  and  the  Bepullic. 

feited  by  the  legislature.  The  rights  of  the  public  in 
the  manageraeut  of  the  creatures  of  the  state  are  not 
to  be  defeated  by  implied  contracts  or  indirect  grants 
of  power.  It  is  a  universal  rule  for  construing  all  such 
grants  by  the  state  that  its  powers  of  supervision  and 
control  are  not  to  be  waived  except  by  the  most  direct 
and  plainest  terms.  Even  ^vhen  made  in  such  terms 
the  action  is  subject  to  the  constitutional  limitations 
which  affect  the  power  granted.  If  the  legislature 
cannot  exert  the  public  power  to  create  a  monopoly, 
as  declared  by  the  Supreme  Court  of  the  United  States 
in  1842,  it  cannot  delegate  a  power  which  would  have 
that  effect  to  any  of  its  corporate  creatures  or  sub- 
jects. 

The  principle  that  the  grants  in  all  charters  must  be 
construed  strictly  against  the  corporations,  and  that 
when  there  is  any  doubt  it  must  be  resolved  in  favor 
of  the  state,  or,  in  other  words,  that  it  must  be  pre- 
sumed that  the  law  will  preserve  the  public  right  as 
against  its  creatures,  makes  it  clear  that  no  implication 
or  deduction  from  the  charters  can  establish  a  contract, 
such  as  Chancellor  Walworth  speaks  of,  by  which  the 
legislature  surrenders  its  power  and  duty  to  regulate 
the  use  of  the  public  highways  for  the  public  welfare. 
This  is  affirmed  in  its  strongest  terms  by  such  authori- 
ties as  Cooley,  Greenleaf,  and  Redfield,  as  true  of  all 
corporations,  and  in  particular  of  railways.  Greenleaf 
further  raises  the  very  pertinent  question  whether  one 
legislature  can  barter  away  the  powers  of  succeeding 
legislatures,  and  ans\vers  it  decidedly  in  the  negative.* 

*  Greenleaf  on  Cruse,  note,  pp.  67  and  68.  See,  also,  Taney's  state- 
ment of  rules  of  construction  in  Charles  River  Bridge  Co.  vs.  Warren 
Bridge,  11  Peters,  544. 


The  Laio  and  tJie  liaihoays.  129 

These  rules  of  tlie  most  autboritative  text-books  are 
based  upon  the  strongest  utterances  of  the  highest 
courts  in  the  hand.  In  the  early  period  of  corporate 
growth,  Taney  and  Black  put  them  in  forcible  lan- 
guage, and  they  have,  of  later  years,  been  repeated  and 
applied  with  equal  weight  of  authority  and  strength 
of  utterance  by  the  Supreme  Court  of  the  United 
States,"^  as  well  as  the  circuit  and  state  courts.  These 
authorities  make  it  clear  that  the  power  of  the  state 
over  the  corporations  can  only  be  abjured  by  the  most 
direct  and  specific  language,  and  especially  that  noth- 
ing could  bind  the  state  not  to  protect  the  rights  of 
the  people  on  the  public  highway,  short  of  an  explicit 
agreement  on  the  part  of  the  legislature,  to  quote  the 
language  of  the  United  States  Supreme  Court,  "  not  to 
do  the  acts"  which  the  railway  would  desire  to  pre- 
vent. Has  any  such  agreement  ever  been  made  by 
the  legislature  of  any  state,  not  to  regulate  the  rail- 
ways so  as  to  preserve  their  public  character  ?  Do  the 
railway  charters  contain  any  express  agreement  on  the 
part  of  the  state  that  it  will  not  secure  by  law  equal 
rights  to  the  public  on  the  highways,  or  that  it  will  not 
compel  the  I'ailways  to  supply  adequate  and  impartial 
accommodations  to  all  alike?  Have  any  charters  ever 
been  m'antecl  in  Avhich  tlie  le2;islature  declares  tliat 
neither  itself  nor  its  successors  shall  ever  exercise  its 
power  to  limit  or  fix  the  amount  of  toll?     When  such 

*  "  The  rule  of  construction  in  tins  class  of  cases  is  that  it  shall  be  con- 
strued most  strongly  against  the  corporation.  Every  rcasonaljle  doubt 
is  to  be  resolved  adversely.  Nothing  is  to  be  taken  as  conceded  but 
what  is  given  in  unmistakaljle  terms,  or  by  an  implication  cquallj'  clear. 
Silence  is  negation  and  doubt  is  fatal  to  the  claim.  This  doctrine  is  vital 
to  the  public  welfare.  It  is  axiomatic  in  the  jurisprudence  of  this  court." 
— Justice  Swayne,  97  U.  S.  G59. 

9 


13*3  The  EaUicay.s  and  the  RejpvJJLic. 

an  extraordinary  instrument  is  produced,  it  will  be 
time  to  inquire  whether^  according  to  the  question 
raised  bv  Greenleaf.  anv  such  action  can  be  taken. 
^Any  act  of  the  legislature  disabling  itself  from  the 
fature  exercise  of  powers  intrusted  to  it  for  the  public 
good  is  void,  being  in  effect  a  covenant  to  desert  its 
paramount  duty  to  the  people."  Or,  if  that  authoiity 
is  not  final,  such  a  provision  in  a  charter  would  raise 
the  still  graver  question  suggested  by  the  Supreme 
Court  of  the  United  States  in  the  Camden  and  Amboy 
case,  whether  it  does  not  rob  the  road  of  the  character 
of  a  public  highway,  and  thus  destroy  the  validity  of 
the  errant. 

It  is  sufficient  for  all  present  puiposes  that  no  agree- 
ment has  ever  been  made  by  any  legislature,  in  which  it 
distinctly  and  in  direct  teims  abjured  its  right  of  reg- 
ulating the  railways  which  it  chartered.  The  estab- 
lishment of  this  fact  by  the  decisions  of  the  courts 
c^oes  into  detail  far  bevond  the  creneral  affirmation  of 
the  Supreme  Court  in  the  Granger  cases,  and  completely 
overturns  the  claim,  with  regard  to  the  most  important 
feature  of  the  charters,  which  the  railway  lawyers  have 
set  up  as  constituting  an  inviolable  contract.  This 
argument  has  been  that  the  grants  in  the  charters  of 
the  railways  of  the  right  to  take  tolls,  which  in  some 
cases  were  left  indefinite,  constituted  an  agreement 
that  the  railway  corporations  should  always  have  that 
right.  On  this  construction  of  the  charters,  by  an 
implication  which  is  declared  inadmissible  in  the  rules 
already  quoted  from  Taney,  Swayne,  Cooley,  Green- 
leafy  and  Kedfield,  the  claim  has  been  set  up  that  acts 
limitins:  the  rates  of  toll  on  the  railwavs  were  uncon- 
stitutional,  as  impairing  the  obligation  of  the  contract 


Ttie  Law  and  the  Railways.  131 

between  the  state  and  the  corporation  created  by  its 
charter.  This  claim  has  been  expressly  denied  by  the 
state  courts  and  the  circuit  courts  of  the  United  States, 
in  cases  which  covered  the  entire  range  of  the  instru- 
ments by  which  the  lisrht  to  take  tolls  has  been  sriven 
in  state  charters.  In  a  case  before  the  Minnesota  Su- 
preme Court,  affiiTued  by  the  Supreme  Court  of  the 
United  States,  a  construction  by  implication  was  al- 
lowed, to  the  extent  of  holding  that  where  a  charter 
did  not  expressly  give  the  railway  company  the  right 
to  take  toll,  that  right  was  to  be  understood  as  an 
essential  feature  of  the  enterprise;  but  the  court  still 
recognized  the  po^ver  of  the  state  by  subsequent  en- 
actment to  fix  and  limit  the  toll  which  could  be  taken 
by  the  corporation. 

This  is  only  decisive  as  to  instances  in  which  the 
charters  do  not  expressly  give  the  right  to  fix  tolls, 
and  might  leave  the  vast  majority  of  charters  in  whicli 
that  right  is  expressly  granted  open  to  construction  as 
contracts,  if  those  charters  were  not  also  fully  covered 
by  judicial  declarations  that  they  do  not  amount  to  a 
conti*act  which  prevents  the  passage  of  further  laws 
on  the  subject.  In  the  prominent  express  cases  decided 
by  Justice  Miller,  of  the  United  States  Supreme  Court, 
and  Judge  McCrary  of  the  Circuit  *Court,"  the  right 
given  in  the  charter  "to  transport  all  articles  usually 
carried  on  railways  and  to  charge  and  receive  such 
tolls  and  fi'eights  therefor  as  should  be  for  the  interes-t 
of  the  corporation,"  and  the  further  grant  of  authority 
to  the  directors  "to  establish  such  tolls  and  to  alter 
the  same  from  time  to  time,"  was  urged  on  behalf  of 
the  defendants.     Here  was  apparently  an  unlimited 

*  Southern  Express  cases.  10  Fed.  Reponer,  210. 


132  The  Hallways  and  the  Rejpuhlic. 

grant  of  power  witli  regard  to  transportation  and  the 
fixing  of  tolls.  Yet  these  eminent  judges  held  that  it 
presented  no  obstacle  to  the  rights  of  the  plaintiffs. 
Another  case  in  which  the  construction  of  these  in- 
definite grants  of  power  to  fix  freight  rates  was  prom- 
inently involved  Avas  that  of  Wells,  Fargo,  <fe  Com- 
pany vs.  The  Oregon  Railway  and  Navigation  Com- 
pany. The  railway  corporation  interested  in  this  case 
was  empowered  by  its  charter  to  collect  such  "  tolls  or 
freights  as  the  corporation  itself  may  prescribe,"  which 
Judge  Deady  held  to  mean  no  more  than  a  grant  to 
take  reasonable  tolls."  The  strict  construction  of  these 
charters  by  the  courts,  in  the  application  which  the 
railways  sought  to  make,  is  decisive  as  to  the  power 
of  the  state  to  fix  and  regulate  the  rates  and  opera- 
tions of  the  railways.  If  the  right  "  to  charge  and  re- 
ceive such  tolls  as  shall  be  to  the  interest  of  the  cor- 
poration," in  one  case,  and  in  the  other,  "  to  collect 
such  tolls  as  the  corporation  itself  may  prescribe," 
does  not,  as  these  courts  justly  decided,  imj^ly  the 
right  of  the  coi'poratiou  to  disregard  equity  and  im- 
partiality in  fixing  their  charges,  it  is  far  more  impos- 
sible for  it  to  imply  that  the  legislature  has  in  any 
such  indirect  manner  deprived  itself  of  its  right  and 
duty  to  regulate  the  tolls  as  the  public  welfare  shall 
require. 

One  class  of  charters,  which  2:)erhaps  comprises  the 
majority,  does  not  seem  to  be  covered  by  these  deci- 
sions. The  instruments  which  fix  a  maximum  of  rates 
that  the  railway  is  authorized  to  charge,  appear  to 
contain  a  specific  grant,  which,  if  anything  could  do 

*  W^ells,  Fargo,  &  Couipauy  ts.  Oregon  Railway  and  Navigation  Com- 
pany, 15  Fed.  Reporter,  5G1. 


The  Law  and  the  Railways.  133 

so,  would  constitute  a  contract  or  agreement  between 
the  state  and  coi'poration.  Such  charters  have,  of  late 
years,  constituted  the  strouiZihold  of  the  railway  law- 
yers a2:ainst  the  rin;ht  of  the  state  to  reirulate  their  cor- 
porations.  Most  certainly  if  the  direct  grant  of  the 
power  to  railway  corporations  to  collect  certain  rates 
stipulated  in  the  charter  does  not  imply  that  they  shall 
always  possess  that  right,  superior  to  state  enactment, 
no  other  provision  can  possibly  do  so.  Such  an  im- 
plication is,  however,  contrary  to  a  fundamental  rule 
of  construction,  and  the  most  thorough  application  of 
that  rule  yet  extant  was  made  by  the  Supreme  Court 
of  Georgia  in  a  comparatively  recent  case.*  The  char- 
ter under  review  in  this  suit  clearly  fixed  the  maximum 
rates  of  freight  which  the  railway  corporation  was 
authorized  to  charofe.  The  rio-ht  of  the  lesfislature  to 
alter  and  further  to  limit  those  rates  was  the  point  at 
issue  alleging  the  complaint  of  the  railway ;  that  the 
commission  appointed  by  a  subsequent  act  of  the  legis- 
lature had  established  rates  much  below  the  limit  fixed 
in  the  charter  of  the  corporation.  Upon  this  issue, 
the  court,  in  a  very  convincing  opinion,  showed  that 
no  such  grant  carried  with  it  the  understandiuG:  that 
the  state  would  not  in  future  exercise  its  constitutional 
privilege  of  regulating  the  charges  of  the  railway. 
"The  words  of  the  charter  parting  with  that  right," 
said  the  court,  "  must  amount  to  a  positive  contract," 
and  "  nothing^  short  of  an  absolute,  direct  airreement 
that  the  state  will  not  use  its  right,  can  under  this  rule 
of  law  prevent  it  from  doing  so."f 

*  Georgia  Railroad  and  Banking  Company  vs.  Commissioners,  70  Ga. 
694. 
t  The  same  act  was  sustained  by  tlie  United  States  Circuit  Court  in 


134  The  Railways  and  the  Bejpublic. 

The  foregoing  pages  give  a  clear  idea  of  the  author- 
ity on  which  the  right  of  the  public,  to  enforce  the 
regulation  of  the  railways  and  the  prevention  of  abuses, 
is  based.  The  weight  of  judicial  opinion  in  favor  of 
that  claim  is  overwhelming.  Mr.  G.  T.  Curtis  stands 
alone  in  denying  that  railways  are  public  highways,  in 
the  face  of  every  high  authority  that  has  ruled  upon 
that  question  from  Walworth,  Shaw,  and  Baldwin 
down  to  Crawford,  Rij^ley,  and  Baxter,  Even  Justices 
Field  and  Strong,  whose  dissent  from  the  extreme  ap- 
plication of  the  doctrine  of  public  right  in  the  case  of 
Munn  i:s.  Illinois  has  placed  them  in  the  attitude  of 
judicial  champions  of  corporate  privileges,  are  wholly 
committed  to  the  doctrine  of  the  public  highway,  by 
their  affirmation  of  that  principle  for  the  benefit  of  the 
railways  four  years  before  the  decision  of  the  Granger 
cases.  In  Mr.  Curtis's  assertion  that  "  if  there  is  no  re- 
served power  of  revision  or  alteration  of  their  charters 
held  by  the  state,  then  they  are  a  species  of  common 
carriers  exempt  from  legislative  regulation  of  their 
charters,"  he  also  stands  alone  against  the  rules  of  con- 
struction laid  down  by  Taney,  Swayne,  and  Cooley, 
and  applied  to  exactly  this  subject  by  Waite,  Miller, 
McCreary,  Baxter,  Deady,  Kipley,  and  Crawford.  It 
is  wholly  at  variance  with  every  idea  of  constitutional 
government  for  the  benefit  of  the  people  governed,  that 
it  can  take  away  the  property  of  a  private  citizen,  and 
give  it  to  a  corporation,  to  be  used  by  the  latter  for  its 
own  private  ends,  without  any  respect  for  public  welfare, 
or  that  the  government  can  surrender  its  power  to  en- 
force the  subordination  of  its  own  creations  to  the 

the  case  of  Tilley  vs.  The  Sayannah,  Florida,  and  Western  Railroad,  5  Fed. 
Reporter,  641. 


The  Law  and  the  Railways.  135 

public  purposes  which  alone  can  justify  the  means 
employed  to  give  them  existence.  Such  a  thing  might 
be  possible  to  an  absolute  tyranny.  It  is  impossible 
in  the  constitutional  government  of  a  free  people.  It  is 
impossible  in  a  legal  sense,  as  irreconcilable  with  the 
principles  on  which  popular  institutions  must  be 
founded ;  it  is  impossible  in  a  practical  sense,  since, 
if  it  obtains  permanent  force  and  full  sway  in  estab- 
lishing gigantic  corporate  influences  of  as  great  or 
greater  power  than  the  government  itself,  the  freedom 
and  independence  of  the  people  will  be  irretrievably 
lost. 

What  is  the  primary  object  and  duty  of  every  public 
highway  ?  Is  it  not  to  furnish  facilities  for  travel  and 
transportation  to  all  classes  alike  ?  It  is  bound  to  fur- 
nish such  accommodations  as  its  nature  affords  to  the 
whole  people.  All  favors  to  individuals  or  grants  of 
privileges  to  special  classes  are  inconsistent  with  its 
public  character.  The  millionaire  can  have  no  rights 
in  the  enjoyment  of  its  services  which  the  poorest 
tradesman  or  most  humble  workingman  cannot  obtain 
on  equal  terms.  It  makes  no  difference  in  the  binding 
force  of  this  obligation  that  the  highway  is  placed  in 
charge  of  a  corporation,  with  power  to  reimburse  itself 
for  its  expenditure  in  improvements  and  repairs,  by 
levying  tolls  upon  the  traffic  which  is  benefited  by 
those  im2")rovements.  The  turnpike  or  canal  company 
that  constructs  such  a  highway  levies  its  tolls  and  ob- 
tains its  profits  sul)ject  to  the  public  obligations  which 
are  an  inherent  part  of  its  grant.  Absolute  impartial- 
ity is  the  first  requisite  of  its  public  character.  The 
tolls  must  bear  equally  upon  all  classes  of  its  traffic 
with  regard  to  the  service  performed.     Its   fjicilities 


"136  The  Railways  and  the  Hepiiblic. 

must  be  afforded  without  favor  to  all  who  seek  to  use 
it  for  the  shipment  of  merchandise  or  for  their  own 
travel.  The  same  acts  of  sovereignty  having  been  era- 
ployed  in  establishing  the  railways  as  in  the  case  of 
the  turnpikes  and  canals,  the  same  public  obligations 
and  the  same  public  rights  attach  to  their  operation. 
The  force  and  adequacy  of  these  principles  of  con- 
stitutional law  are  shown  by  the  complete  and  thor- 
ou^-h  application  which  the  earlier  definitions  of  the 
relations  between  the  railways  and  the  public  have  to 
practices  which  have  attracted  public  attention  only 
at  a  comparatively  recent  date.  The  idea  that  the 
company  may  so  conduct  its  business  as  to  afford 
cheap  transportation  to  some  persons  and  to  exclude 
others  from  its  benefit  was  expressly  denied  from  the 
start.  It  is  not  permitted  to  charge  higher  rates  to 
one  person  than  to  another.  It  must  be  "the  usual 
rate  of  fare,"  said  Chancellor  Walworth ;  and  as  if  to 
forestall  the  claim  that  the  higher  rate  is  the  usual 
one,  and  the  lower  rate  granted  to  favored  pei'sons  the 
special  one,  the  Supreme  Court  of  the  United  States  fol- 
lowed this  up  by  declaring,  in  the  Camden  and  Amboy 
case,  that  it  must  be  "  a  stipulated,  reasonable,  and  uni- 
form toll."  The  foi'cible  admonition  is  given  in  this  de- 
cision that  if  the  railway  does  not  maintain  these  qual- 
ities in  its  toll,  it  is  not  a  public  highway,  and  the  leg- 
islative acts  by  v»'hich  it  obtained  its  road  are  uncon- 
stitutional and  void.  The  rates  must  not  be  excessive, 
but  reasonable;  they  cannot  be  changed  to  apply  to  each 
particular  case,  but  they  must  be  stipulated  ;  and  they 
cannot  be  made  different  to  different  shippers  or  trav- 
ellers, but  they  must  be  uniform.  The  idea  of  exclud- 
ing any  traffic  by  levying  upon  it  rates  that  make  it 


The  Lav)  and  the  Railways.  137 

impossible  to  be  shipped,  is  forbidden  iu  the  clearest 
terras.  "  But  if  the  toll  araoimts  to  a  prohibition  "  says 
the  report,  "  it  is  a  monopoly  and  the  road  is  not  pub- 
lic," and  in  such  cases  "  it  is  opposed  to  every  constitu- 
tional principle  whicli  protects  the  right  of  property." 
Finally,  the  legal  existence  of  the  railway  is  not  se- 
cured by  the  mere  legal  enunciation  of  its  public 
character  or  the  affirmation  of  its  charter  that  it  is  a 
public  highway,  while  its  actual  operation  ignores  that 
public  charactei'.  It  must  be  operated  as  a  public 
liighway  in  order  to  preserve  the  validity  of  its  char- 
ter. "The  declaration  in  the  charter  that  the  Camden 
and  Amboy  is  a  public  highway  does  not  make  it  so, 
if  the  effect  of  the  charter  is  to  give  the  exclusive  use 
to  the  corporation,"  says  Judge  Baldwin;  and  in  further 
definition  he  says,  "the  true  criterion  is  whether  the 
objects,  uses,  and  purposes  of  the  incorporation  are  for 
public  convenience  or  private  emolument,  and  whether 
the  public  can  participate  in  them  by  right  or  only  by 
l)ermission."  What  may  result  from  the  failure  or  re- 
fusal to  observe  these  fundamental  principles  is  signif- 
icantly set  forth  by  the  Supreme  Court  of  Pennsyl- 
vania, in  saying  that  charters  can  be  forfeited  for  abuse 
and  misuser  of  privileges  whicli  consist  of  any  positive 
act  in  violation  of  the  charter  or  in  deroo;ation  of  the 
public  rights  (set  forth  in  the  preceding  extracts)  wil- 
fully done  or  caused  to  be  done  by  those  appointed  to 
manage  the  corporation ;  "  in  which  case,"  the  court 
weightily  said,  "the  franchises  are,  as  a  necessary  con- 
sequence, returned  to  the  state,  and  the  road  remains 
what  it  always  was — public  propei-ty."  It  is  evident 
that  these  courts  ^vould  have  had  little  toleration  for 
the  idea  of  a  highway  that  gives  one  shipper  certain 


138  The  Bailways  and  the  BepuUic. 

rates  and  makes  otliers  for  Lis  competitors,  so  high 
as  virtually  to  exclude  them  from  market;  or  for  the 
idea  that  the  corporation  controlling  that  highway  may 
order  the  public  to  cease  producing  a  certain  class  of 
merchandise,  and  to  suspend  operations  for  a  stated  pe- 
riod, on  pain  of  being  excluded  from  the  use  of  the 
highway,  or  to  sell  certain  products  at  a  stated  price 
under  the  same  penalty.  It  is  hardly  possible  to  con- 
ceive what  these  judges  would  have  said,  if  they  had 
been  confronted  by  the  claim  that  all  the  corporations 
in  the  country  might  unite  to  maintain  an  artificial 
standard  of  rates;  that  one  such  corporation  might 
practically  say  to  the  public  that  no  goods  should  be 
forwarded  over  its  public  highway  till  another  public 
highway  had  secured  its  share  of  business,  for  the  ben- 
efit of  the  public  highway  interest  at  large ;  or  that  if 
the  merchandise  in  question  had  yielded  toll  to  the 
corporations  controlling  sundry  public  highways  in 
divers  parts  of  the  land,  it  should  be  cariied  over 
this  highway  for  less  tolls  than  if  it  had  not  done  so. 
But  we  may  be  sure  that  the  vigor  of  the  judicial 
vocabulary  would  have  been  severely  taxed  to  express 
utter  condemnation  of  such  ideas,  and  the  unquali- 
fied judgment  that  such  acts  are  w^holly  repugnant 
to  constitutional  principles,  and  a  gross  infraction  of 
the  contract  by  which  the  public  highway  w^as  founded. 
Upon  the  binding  force  and  the  utter  indefeasibility  of 
the  public  right  to  obtain  impartial,  equitable,  and  un- 
restricted privileges  of  transportation  upon  the  rail- 
ways the  earlier  decisions  are  as  clear  and  unmistak- 
able as  in  their  declaration  that  the  railways  are  pub- 
lic highways. 

The  decision  of  the   later  courts  a^rainst  the  dis- 


The  Law  and  the  Railways.  139 

criminations  wbicli  have  formed  the  subject  of  the  pre- 
ceding chapters  have  been  no  less  vigorous  and  deci- 
sive. No  law  with  regard  to  the  railways  is  more  defi- 
nitely established  than  that  their  accommodations  must 
be  extended  to  all  persons  on  the  impartial  principle 
of  exactly  equal  rates  for  equal  services.  A  review  of 
the  decisions  made  by  the  different  courts  before  which 
this  question  has  come  for  adjudication,  both  in  this 
country  and  England,  not  only  shows  that  they  have 
declared  the  necessity  of  equality  in  rates  in  the  most 
decided  language,  but  the  cases  in  which  they  have 
asserted  that  rule  cover  the  most  vital  forms  of  dis- 
crimination that  have  been  made  of  late  years,  and  es- 
tablish beyond  question  the  utter  illegality  of  all  such 
practices.  One  point  with  regard  to  these  decisions 
deserves  notice ;  and  that  is  that  none  of  them  have 
ever  been  carried  up  to  the  Supreme  Court  of  the 
United  States.  Abundant  opportunity  has  been  given 
to  railway  lawyers  for  testing  this  principle  in  the 
court  of  last  resort,  by  its  affirmation  to  the  fullest 
extent  in  the  United  States  circuit  and  district  courts. 
Some  eight  or  ten  cases  have  been  decided  by  those 
courts,  in  which  various  discriminations  of  the  railways 
were  entirely  forbidden.  In  one  jDrominent  group  of 
cases  the  attempt  of  the  railways  to  exclude  certain 
express  companies  from  the  transaction  of  business  on 
their  roads,  either  for  the  benefit  of  a  favored  company 
or  for  the  purpose  of  concentrating  the  express  busi- 
ness in  the  hands  of  the  railway  itself,  was  declared 
illegal;  and  the  railways  were  enjoined  to  furnish  to 
all  express  carriers  who  desire  to  use  their  road  cars 
for  the  transaction  of  the  business,  up  to  their  full  ca- 
pacity, upon  exactly  equal  terras.     In  other  cases  the 


140  The  Railways  and  the  Republic. 

discrimination  against  one  stock-yard  in  a  certain  city 
for  the  benefit  of  another  was  made  the  subject  of  an 
injunction  ;  while  in  yet  another,  the  practice  of  giving 
rebates  to  the  largest  shipper  was  adjudged  illegal, 
and  damages  were  awarded  to  the  smaller  shipper  to 
the  full  extent  of  the  discrimination.  The  railways 
have  not  given  up  the  practice  of  discrimination.  Some 
of  the  identical  forms  of  that  abuse  condemned  by  the 
circuit  courts  are  still  maintained  on  the  leading  lines. 
Whatever  attempts  are  made  by  injured  shippers  to 
obtain  a  legal  remedy  for  the  abuse  are  fought  in  the 
lower  courts  with  such  pertinacity,  and  made  so  ex- 
pensive, as  to  discoui-age  all  but  the  boldest  or  the 
most  wealthy  litigants.  But  the  fact  that  the  railways 
do  not  dispute  the  legal  principle  on  which  all  the  de- 
cisions against  discriminations  are  founded,  by  carry- 
ing them  into  the  court  of  last  resort,  amounts  to  a 
tacit  acknowledgment  of  its  legal  correctness.  In  ad- 
dition to  the  judicial  condemnations  of  discriminations 
which  can  be  quoted,  we  have,  tlierefore,  the  practi- 
cal confession  of  tlie  railway  authorities  themselves, 
that  the  legal  requirement  of  equal  terms  to  all  ship- 
pers cannot  be  successfidly  denied  before  the  highest 
courts. 

In  the  decisions  which  are  to  be  cited  on  this  point, 
two  of  the  earliest  among  the  American  rulings  ^vere 
given  by  the  Supreme  Court  of  Pennsylvania.  One 
of  them  is  especially  interesting,  as  involving  a  prac- 
tice which  is  now  the  rule  in  the  management  of 
nearly  every  important  railway  in  the  land,  and  as  be- 
ino"  rendered  by  a  judge  whose  subsequent  dissent  in 
the  United  States  Supreme  Court  from  the  famous 
Granger  decisions  gives  his  authority  peculiar  weight, 


The  Law  and  the  Eailways.  141 

when  thrown  against  a  common  railway  practice.  The 
question  was  whether  a  railway  can  adjust  its  rates 
for  carriage  over  its  own  line,  so  as  to  induce  the  ship- 
ment of  freight,  beyond  its  terminus,  over  the  line 
^vhich  it  wishes  to  favor  ?  How  illegal  this  is,  appears 
from  the  declaration  of  Judge  Strong,  more  than  twen- 
ty years  ago,*  not  only  that  the  railways  cannot  make 
such  a  discrimination  for  a  third  party,  but  that  they 
cannot  even  do  it  for  tlieir  own  benefit  as  owners  and 
lessees  of  the  connecting  roads.  The  practical  and 
universal  declaration  of  such  roads  as  the  Pennsylva- 
nia Railroad,  that  if  the  shipper  will  send  his  freight 
beyond  Pittsburgh,  by  its  connecting  line,  the  Fort 
Wayne  road,  he  shall  have  a  better  rate  than  if  he  is 
left  free  there  to  forward  it  by  river,  or  by  some  othei' 
railway,  or  the  exactly  similar  practice  of  the  ]N"ew 
York  Central,  in  forcing  the  shipment  of  its  through 
freight  over  its  connecting  lines,  is,  under  the  principle 
laid  down  in  this  decision,  utterly  illegal.  That  deci- 
sion is  wholly  ignored  in  the  railway  methods  of  the 
day.  But  it  stands  uncontro verted,  as  the  declaration 
of  one  of  the  highest  living  jurists,  who  is  bjMio  means 
a  severe  critic  of  corporate  doings,  that  "It  is  not  con- 
sistent with  the  public  interest  or  ^vith  common  right 
that  they  (the  railways)  should  be  permitted  so  to 
use  it  (their  power  of  making  rates  for  merchandise 
shipped  on  their  lines)  as  to  secure  to  themselves  su- 
perior and  exclusive  advantages  on  other  lines  of  trans- 
portation beyond  the  ends  of  their  own  i-oad."  This 
appears  like  extreme  doctrine,  especially  when  con- 
trasted with  the  almost  universal  practice  of  the  rail- 
way corporations.  Yet  it  only  follows  the  law  as  laid 
*  Twells  m.  Pennsylvania  R.  R.,  3  American  Law  Register,  728. 


14:2  The  Railways  and  the  EepuUic. 

down  in  a  leading  English  case  quoted  as  authorita- 
tive in  American  courts.  In  the  case  of  Braxendale,* 
the  English  court  made  a  still  more  extreme  applica- 
tion than  the  American  courts  have  done.  This  case 
not  only  established  the  rule  that  the  railway  cannot 
adjust  rates  to  secure  business  for  its  connecting  or 
subsidiary  lines,  but  it  also  laid  down,  in  its  extreme 
prohibition  of  discrimination  against  even  a  competi- 
tor of  the  railway  in  the  carriage  of  freight,  the  prin- 
ciple of  absolute  equality  of  accommodation  between 
shippers,  which  forms  the  foundation  of  the  famous  ex- 
press decisions  in  the  courts  of  this  country. 

It  is  noticeable,  too,  that  in  a  case  very  similar  to 
the  exjoress  cases  decided  in  the  United  States  courts 
in  the  present  decade,  exactly  the  same  principle  of  law 
was  decided  by  the  Supreme  Court  of  Pennsylvania, 
thirty  years  ago,  to  be  inherent  in  the  principles  on 
v/hich  the  railways  are  founded.  It  is  no  new  theory 
that  has  been  enunciated  by  Justices  Miller,  McCrary, 
Baxter,  and  Deady,  in  holding  that  the  railways  are 
oblio-ed  to  give  equal  rates  and  facilities  to  all  express 
companies,  and  that  they  cannot  exclude  any  such  ap- 
plicants for  transportation,  even  for  the  purpose  of 
carrying  on  the  traffic  on  their  own  account.  That 
decision  was  made  in  1855,f  and  the  necessity  for  re- 
peating it  only  proves  the  irrepressible  conflict  which 
is  constantly  going  on  between  the  prevalent  methods 
of  the  railway  corporations  and  the  principles  of  law 
on  which  they  have  obtained  their  existence.  The 
enunciation  of  the  same  principles  of  law  twenty-five 
years  later  was  as  thorough   and  forcible  as  in  the 

*  In  re  Braxendale,  94  English  Common  Law  Reports,  308. 
t  Sanford  rs.  Catawissa  and  Williamsport  Railroad,  24  Pa.  378. 


The  Law  and  the  Railways.  143 

early  vigor  and  independence  of  the  Pennsylvania 
court.  The  force  and  effectiveness  of  these  later  de- 
cisions are  perhaps  increased  by  the  fact  that  some 
half  dozen  cases  arisins;  in  four  different  states  were  all 
decided  in  accordance  with  this  principle,  and  were  all 
affirmed  by  a  member  of  the  Supreme  Bench,  upon  the 
final  hearins:  in  the  circuit  court/"^  In  all  these  cases 
the  various  expedients  by  which  the  railways  could 
seek  to  exclude  an  express  company  from  the  use  of 
their  roads,  either  for  the  benefit  of  a  f^ivored  company 
or  for  the  purpose  of  monopolizing  the  express  traffic 
in  their  own  hands,  were  brought  into  question.  All 
of  them,  whether  by  refusing  facilities  to  the  disf^wored 
companies,  or  by  adjusting  rates  so  as  to  place  them  at 
a  vital  disadvantage,  or  by  a  contract  which  gave  the 
favored  express  carriers  such  an  amount  of  space  in 
their  cars  as  to  exclude  the  others,  were  held  to  be 
illegal  and  inadmissible.  It  was  virtually  adjudged 
that,  neither  by  direct  or  indirect  means,  "could  the 
railways  "insist  upon  the  exclusive  right  to  do  such 
business  themselves,  nor  grant  such  to  one  express 
company  to  the  exclusion  of  others,  hut  are  hound  to 
carry  for  every  one  offering  to  do  the  same  sort  of  husi- 
ness  vpon  the  same  termsP  These  plain  and  uncom- 
promising declarations  of  the  courts  place  a  vast  num- 
ber of  the  prevalent  railway  discriminations  under  the 
ban  of  the  law. 

Another  leading  class  of  discriminations  was  shown 
to  be  illegal,  and  another  plea,  by  which  many  instances 
of  that  abuse  have  been  defended,  was  overtlirown  by 
a  decision  which  declared  rebates  given  to  a  huge  ship- 
per, based  solely  on  the  amount  of  freight  shipped  by 
*Soutbcra  Express  cases,  10  Federal  Reporter,  210. 


14-i  The  Bailways  and  the  RepuUic. 

him,  to  be  "  violative  of  tlie  equality  of  rights  guar- 
anteed to  every  citizen,"  *  Upon  the  plea  that  the 
large  shipper  is  entitled  to  the  lower  rate,  the  favors 
granted  to  the  Standard  Oil  Company,  as  well  as 
numerous  cases  of  less  notorious  discriminations,  have 
been  justified  by  the  railways.  No  other  apology  has 
been  offered  or,  indeed,  exists  ;  and  how  utterly  the 
adequacy  of  that  defence  is  rejected  by  the  law  is 
shown  in  Judge  Baxter's  forcible  denunciation  of  it. 
His  vio-orous  statement  of  the  results  which  follow  that 
practice  stands  out  as  a  condemnation  of  what  has 
been  done  by  exactly  such  illegal  use  of  the  railway 
power.  The  managers  of  the  railways  "  would  be 
quick  to  appreciate  the  power  with  which  such  a  hold- 
in£c  w^ould  invest  them,"  could  favor  their  friends  to  the 
detriment  of  their  personal  or  political  opponents,  "  or 
might  demand  a  division  of  the  profits"  in  interests  to 
be  affected  by  such  disci'iminations,  or  finally  might 
"extinguish  competition,  monopolize  business,  or  dictate 
the  price  of  coal  or  every  other  commodity  to  consu- 
mers." Judge  Baxter  says,  "  these  results  might  fol- 
low" the  use  of  such  a  power;  but  those  who  have 
studied  the  history  of  the  Standard  Oil  Company,  or 
of  the  anthracite  coal  combination,  or  investigated  the 
numerous  less  prominent  cases  of  discrimination  in  fa- 
vor of  the  largest  shipper,  raised  to  that  enviable  posi- 
tion by  the  ftivor  of  the  railways,  know  that  they  have 
followed  it.  His  radical  condemnation  of  the  practice 
shows  how  flagrant  a  defiance  of  the  principles  of  law 
and  justice  is  comprised  in  that  practice,  "  Capital 
needs  no  such  extraneous  aid,"  says  the  judge.  It  has 
many  inherent  advantages,  but  it  "  has  no  just  claim, 

Hays  vs.  Pennsylvania  Company,  13  Federal  Reporter,  309. 


The  Law  and  the  Railways.  145 

by  reason  of  its  accumulated  strength,  to  demand  the 
use  of  the  public  highways  on  more  favorable  terms 
than  are  accorded  to  the  humblest  of  the  land,"  and 
to  give  it  such  favors  "  is  a  discrimination  in  favor  of 
capital  and  is  contrary  to  sound  public  policy,  viola- 
tive of  that  equality  of  right  guaranteed  to  every  citi- 
zen in  the  land,  and  a  wrong  to  the  disfavored  party 
for  Avhich  the  courts  are  compelled  to  give  redress." 

Not  only  is  this  attempt  to  justify  special  rebates  to 
favored  shippers  ruled  out  by  the  courts,  but  all  con- 
tracts agreeing  to  carry  for  one  shipper  at  a  cheaper 
rate  than  for  others  fall  under  the  same  ban.  Just 
such  a  contract  as  that  by  which  the  power  of  the 
Standard  Oil  Company  was  made  permanent  was  de- 
cided by  the  Supreme  Court  of  New  Jerse}','^  some 
years  before  that  last  violation  of  the  public  rights  was 
perpetrated,  to  be  "  void  as  ci-eating  an  illegal  prefer- 
ence, and  inconsistent  with  the  duty  of  the  railway  cor- 
porations to  observe  to  all  men  perfect  impartiality." 

One  of  the  universal  practices,  by  which  the  rail- 
ways control  some  of  the  branches  of  business  depend- 
ent on  their  services,  is  to  dictate  what  warehouses  or 
facilities  for  receivinnr  certain  classes  of  frei oh t  shall  be 
permitted  to  exist  upon  their  lines.  This  practice  is 
most  general  in  its  application  to  the  business  of 
grain  elevators  and  stock-yards.  Yet  any  discrimina- 
tion between  such  competing  establishments  has  been 
decided  by  the  Supreme  Court  of  Illinois  and  tlie  Cir- 
cuit Court  of  the  United  States  to  be  utterly  illegal. 
The  t^vo  Illinois  cases  f  took  into  consideration  tlie  at- 

*  Messenger  m,  P.  R.  R.,  36  New  Jersey  Law  Reports,  407. 
t  Vincent  vs.  C.  and  A.  R.  R.,  49  111.  33,  and  C.  and  N.  W.  R.  R.  xs.  Illi- 
nois, 50  111.  3G5. 

10 


146  The  Railways  and  the  Republic. 

tempt  of  the  railways  to  discriminate  between  certain 
grain  elevators  at  Chicago,  and  affirmed  the  legal  doc- 
trine that  for  a  railway  to  attempt  to  divert  shipments 
from  one  to  another,  either  by  a  difference  in  charges, 
or  by  refusing  to  deliver  the  grain  consigned  to  one 
such  elevator  upon  any  pretext,  either  of  a  contract  to 
do  otherwise,  or  of  its  own  interest  and  practice,  was 
"  peculiarly  defiant  of  its  obligations  (of  the  railway) 
as  a  common  carrier,"  Such  a  practice,  as  Judge 
Lawrence  put  it,  "  might  result  in  the  creation  of  a 
system  of  organized  monopolies  in  the  most  important 
articles  of  commerce,  claiming  existence  under  a  per- 
petual charter  from  the  state,  and  by  the  sacredness  of 
such  charter  claiming:  also  to  set  the  lecfislative  will 
itself  at  defiance."  These  decisions  preceded  by  some 
years  the  thorough-going  rulings  of  the  United  States 
courts  upon  discriminations,  and  in  reality  furnished  a 
j)recedent  for  them  in  the  high  authority  of  Chief-jus- 
tice Lawrence,  that  the  fundamental  principles  of  law, 
to  which  the  railways  owe  their  existence,  demand  ab- 
solute impartiality  to  all  shippers,  and  that  it  is  the 
duty  of  the  legislature  and  the  courts  alike  to  enforce 
that  rule.  The  same  right  was  no  less  plainly  affirmed 
by  the  Circuit  Court  of  the  United  States,"  in  a  case 
where  a  railway  had  agreed,  in  connection  with  an- 
other railway,  to  deliver  all  the  live-stock  shipped 
over  its  road  to  the  yards  of  the  favored  company, 
thus  excluding  the  complainant  from  any  competition 
in  the  business.  The  decision  of  Judge  Baxter,  like 
all  his  utterances  on  such  subjects,  was  forcible  and  un- 
compromising.    The  railways  "  possess  no  such  power 

*  Coe  &  Milsom  vs.  Louisville  and  Nasliville  Railroad,  12  Federal  Re- 
porter, 775. 


The  Law  and  the  Railways.  147 

to  kill  and  make  alive,"  and  those  injured  by  such  ac- 
tion need  not  a\Yait  the  slow  progress  of  a  suit  for 
damages,  Lut  can  obtain  a  prompt  relief  by  an  injunc- 
tion from  the  courts. 

Finally,  a  very  common  class  of  discrimination  is 
shov^m  to  be  illegal,  in  the  recent  decision  of  the  United 
States  Circuit  Court,  that  a  railway  cannot  either  ex- 
clude the  freight  of  a  connecting  line,  or  give  adv^an- 
tacjes  to  one  connectins*  line  over  another  in  the  rates 
at  which  freight  is  exchanged.  Hardly  any  more  com- 
mon practice  in  the  present  conduct  of  the  railways 
could  be  specified  than  that  of  making  rates  so  as  to 
cause  all  the  through  freight  of  a  railway  to  go  over 
the  line,  at  its  terminus,  which  it  desires  to  fovor,  and 
practically  to  exclude  other  lines  from  any  exchange 
or  prorating  of  freights.  But  Judges  McCrary  and 
Hallett,  in  the  Denver  and  New  Orleans  case,^  de- 
cided that  every  railway  is  bound  to  receive  freight 
from  all  lines  connecting-  with  it,  and  to  deliver  freig-ht 
to  all  as  ordered  by  the  shippers,  on  equal  terms.  This 
case  not  only  establishes  the  right  of  railwa3^s  to  equal 
privileges  in  their  dealings  with  others,  but  clearly  im- 
plies that  the  division  of  freights  referred  to  in  the 
chapter  on  pooling  is  illegal. 

These  cases  cover  nearly  all  forms  of  discrimination 
between  shipjiers.  In  the  first  place  eveiy  one  of  them 
affirms  the  legal  obligation  of  impartiality.  In  detail, 
they  prohibit  discriminations  even  for  the  benefit  of 
other  lines  in  which  railroads  have  a  legitimate  interest ; 
or  to  secure,  for  themselves  exclusively,  the  express  busi- 
ness over  their  own  lines.     The  railroads  may  not  ex- 

*  Denver  and  New  Orleans  R,  R.  vs.  Atchison,  Topcka,  and  Suuta  F(5 
R.  R.,  15  Federal  Reporter,  C50. 


148  The  Railways  and  the  Republic. 

elude  a  competitor  from  using  their  road  and  cars  on 
equal  rates  with  other  shippers.  Discriminations  in  fa- 
vor of  the  shipper  who  furnishes  the  largest  traffic  are 
held  to  be  illegal,  and  contracts  to  give  one  shipper  a 
lower  rate  than  others  are  null  and  void.  All  eleva- 
tors, stock-yards,  and  other  establishments  for  the  re- 
ceipt and  handling  of  special  classes  of  freight  must 
be  treated  alike,  and  all  other  railways  must  have 
equal  privileges  and  rates.  When  the  courts,  in  such 
cases  as  these,  insist  on  perfect  equality  for  all  cus- 
tomers of  the  railways,  it  is  plain  that  no  form  of  dis- 
crimination injurious  to  any  shipper  is  tolerated  in  law. 
There  is  one  class  of  discriminations  upon  which  these 
decisions  have  no  direct  bearing;  those  in  favor  of  one 
locality  or  city  against  another.  But  if  it  is  illegal 
for  the  railway  to  differentiate  rates  so  as  to  force 
business  over  its  own  leased  line,  or  into  its  own  ele- 
vator or  stock-yards,  how  plainly  is  the  same  rule  of 
equality  violated  by  forcing  traffic  to  one  city  or  local- 
ity to  the  exclusion  or  decay  of  another?  Not  that 
the  railways  are  or  ought  to  be  obliged  by  law  to  give 
as  low  rates  to  a  non-competitive  point  as  to  a  com- 
petitive one.  The  inequalities  arising  from  the  un- 
equal workings  of  competition  call  for  remedies  deeper 
than  mere  reo-ulative  les-islation.  But  all  artificial  in- 
equalities  of  rates  between  different  points  are  obvious- 
ly as  much  in  conflict  wnth  the  impartiality  required 
by  law,  and  with  public  right,  as  any  of  the  discrimi- 
nations condemned  in  these  decisions. 

The  legal  principles  cited  in  this  chapter  establish 
the  right  of  the  state  to  control  the  railways,  and  the 
public  obligations  implied  in  the  very  conditions  of 
their    existence.      These   rights    and    obligations    are 


The  Law  and  the  Railways.  149 

founded  in  reason  and  justice.  It  is  absurd  to  sup- 
pose that  a  representative  government  can  create  cor- 
porations with  an  irresponsible  power  over  commerce 
greater  than  that  intrusted  to  the  government  itself. 
If  our  institutions  permitted  such  an  anomaly  it 
would  call  for  constitutional  changes  to  make  it  impos- 
sible. The  preservation  of  popular  rights,  the  prime 
object  of  our  government,  is  incompatible  with  the 
growth  of  irresponsible  j^owers,  whether  in  the  shape 
of  feudal  aristocracies  or  corporate  plutocracies.  It 
has  been  abundantly  shown  that  the  fundamental  prin- 
ciples of  law,  as  laid  dovrn  by  the  courts,  tolerate  no 
such  powers.  These  principles  have  been  clearly  de- 
clared and  directly  applied  by  authoritative  judicial 
decisions.  All  that  is  necessary  is  to  comprehend  and 
apply  them.  The  principles  thus  established  may  be 
stated  as  follows : 

1.  The  railway  is  an  improved  and  modern  public 
highway  for  the  transportation  and  travel  to  which  it 
is  adapted,  just  as  canals  and  turnpikes  are  public 
highways  for  tliat  to  which  they  are  adapted.  It  owes 
its  existence  to  the  exertion  by  the  government  of  its 
power  to  establish  highways,  a  power  which  even  the 
government  cannot  employ  for  any  but  a  public  pur- 
pose. 

2.  The  corporations  to  which  the  construction  and 
conduct  of  these  public  highways  are  intrusted  by 
the  state  can  use  their  franchises  for  gain,  in  all  ways 
consistent  with  their  public  character.  To  allow  the 
private  and  pecuniary  objects  of  these  enterprises  to 
supersede  their  public  purpose  would  make  private 
rights  superior  to  public  rights,  would  defeat  the  end 
for  which  they  were  created,  destroy  their  public  char- 


150  The  Hallways  and  the  Rejpvhlio. 

acter,  and  render  the  acts  by  wLicli  tbey  were  created 
unconstitutional  and  void. 

3.  In  the  nature  of  a  public  highway  the  govern- 
ment whicli  creates  it  retains  the  right  and  the  duty  of 
supervising  and  regulating  it,  so  as  to  guard  and  main- 
tain its  public  use.  Every  grant  of  a  franchise  in  the 
highway  is  subject  to  this  reserved  power  of  the  state, 
and  it  is  doubtful  whether  the  legislature  can,  even  by 
a  direct  and  explicit  surrender  of  its  control,  divest  it- 
self or  its  successors  of  their  power  to  protect  the  pub- 
lic in  its  enjoyment. 

4.  The  fundamental  characteristic  of  the  public  high- 
way is  the  right  of  all  persons  to  use  it  upon  equal 
terms.  Both  as  public  highways  and  as  common  car- 
riers the  I'ailways  are  bound  to  absolute  impartiality, 
in  equal  charges  to  all  persons  for  equal  services,  and 
in  equal  accommodations  to  every  one  seeking  the  use 
of  their  tracks.  Any  discriminations  in  the  tolls  or 
freight  charges  which  give  one  individual  or  class  an 
advantage  over  others,  or  any  combinations  to  prevent 
the  free  use  of  their  facilities,  are  illegal  and  destruc- 
tive of  their  character  as  public  highways. 

These  legal  rights  and  obligations  of  the  railways 
are  defined  by  the  common  law.  Its  rulings  are  of 
peculiar  value  in  this  inquiry,  because  they  not  only 
declare  the  duties  and  the  rights  of  the  corporations, 
but  also  explain  the  principles  upon  which  both  their 
public  rights  and  private  duties  are  founded.  But  it 
is  worthy  of  notice  that  the  constitutional  provisions 
of  the  leading  states  in  the  Union  are  fully  as  ex- 
plicit as  the  common  law  in  declaring  the  public 
character  of  the  railways  and  in  asserting  their  subor- 
dination to  the  legislative  power  in  all  matters  affecting 


The  Law  and  the  Railwaijs.  151 

the  public  interests.  The  "  obsolete  tbeoiy  "  that  the 
railways  are  public  highways  finds  direct  enunciation 
in  the  most  recently  enacted  state  constitutions.  In 
Arkansas,  Alabama,  Colorado,  Illinois,  Louisiana,  Mis- 
souri, Nebraska,  Pennsylvania,  and  Texas,  the  constitu- 
tions adopted  within  the  last  decade  all  declare  that 
the  railways  are  public  highways.  The  constitutions 
of  California,  Georgia,  Iowa,  Michigan,  Minnesota,  and 
Wisconsin  affirm  the  riirht  of  the  lecjislature  to  res^u- 
late  the  operations  of  the  railway's,  while  many  other 
states  have  practically  asserted  that  right  by  its  actual 
exercise,  and  it  has  never  been  successfully  denied.  Of 
the  fifteen  constitutions  referred  to,  twelve  explicitly 
forbid  discriminations  between  shippers  or  passengers, 
while  in  other  states  a  similar  prohibition  is  implied 
by  the  constitution  or  bylaws  made  under  its  author- 
ity. Pools  or  combinations  between  different  railroads 
to  the  prejudice  of  other  railroads  are  forbidden  by  the 
constitutions  of  Arkansas,  Illinois,  Colorado,  Georgia, 
Michigan,  Missouri,  Nebraska,  Pennsylvania,  and  Ohio. 
Rebates  and  drawbacks  are  prohibited  by  constitutional 
enactments  in  Arkansas,  California,  Geoi-gia,  Missouri, 
and  Pennsylvania,  while  the  much-defended  practice 
of  charorino;  more  for  a  short  haul  than  for  a  lono;er  one 
over  the  same  line  is  forbidden  by  the  constitutions  of 
Pennsylvania,  Missouri,  Arkansas,  and  California,  and 
by  the  highly  lauded  statute  law  of  Massachusetts. 
There  is  not  a  claim  of  the  railway  reformers,  nor  an 
enunciation  of  the  courts,  subordinating  tlie  franchises 
of  railway  corporations  to  the  public  interest,  but  finds 
explicit  recognition  in  the  most  recent  constitutions. 
The  "old  principles  of  law"  which,  according  to  rail- 
way advocates,  have  been  repealed  by  the  necessities  of 


152  The  Railways  and  the  Republic. 

modern  progress,  are  incorporated  in  the  clearest  terms 
in  the  constitutional  instruments  that  have  been  drawn 
up  within  ten  or  fifteen  years. 

These  constitutions  would  prevent  most  of  the  rail- 
way abuses,  if  their  provisions  were  enforced.  But  the 
dangerous  power  of  the  railway  interest  is  apparent  in 
the  fact  that  in  twelve  states  of  the  Union  it  is  able 
to  nullify  and  override  the  constitution.  To  violate 
statute  law  is  bad  enough  ;  but  this  defiance  of  consti- 
tutional provisions  exhibits  the  railway  power  as  en- 
dangering the  rule  of  the  people  and  threatening  to 
make  corporate  dictation  supreme.  In  the  twelve  states 
whose  constitutions  forbid  discriminations  it  is  safe  to 
say  that  the  prohibition  is  secretly  violated  every  day 
in  the  year.  In  the  nine  states  in  which  pooling  is 
forbidden,  the  constitutions  have  been  openly  defied 
for  the  last  six  years.  In  the  five  states  in  which  re- 
bates and  drawbacks  are  prohibited,  and  the  same 
number  in  wdiich  the  short  and  long  haul  discrimina- 
tion is  forbidden,  these  constitutional  and  statutory 
provisions  are  simply  ignored  by  railway  magnates 
who  are  stronger  than  the  constitutions  and  the  law. 
Who  can  fail  to  see  the  danger  to  popular  institutions 
and  the  decay  of  representative  government  when,  un- 
der the  influence  of  the  railways,  the  legislators  elected 
by  the  people  refuse  to  pass  laws  directly  required  by 
the  constitution,  and  necessary  for  the  enforcement  of 
the  fundamental  law?  Yet  last  winter  a  law^  which 
would  have  merely  put  into  effect  the  language  of  the 
constitution  was  defeated  in  Pennsylvania  by  subser- 
vient representatives  of  the  people,  under  orders  from 
a  great  railway  corporation. 

It  is  upon  the  principles  laid  down  by  the  courts 


TJie  Law  and  the  Railways.  153 

and  set  forth  in  the  state  constitutions,  that  the  rail- 
ways of  the  country  have  been  created.  These  prin- 
ciples alone  justify  the  charters  and  sustain  the  exercise 
in  their  behalf  of  the  sovereign  power  of  eminent  do- 
main. Their  public  obligations  and  their  subordina- 
tion to  governmental  control  are  conditions  of  their 
legal  existence.  In  view  of  tlie  acts  which  brought 
the  railways  into  being,  there  is  no  more  doubt 
of  the  right  of  the  state  to  impose  all  needful  regu- 
lations upon  them,  to  secure  impartiality  and  free- 
dom in  their  use,  than  there  is  of  the  right  of  the  man 
who  has  sold  land  to  collect  the  stipulated  price  from 
the  buyer.  To  sum  up,  the  railway  is  created  by  law 
to  fulfil  a  public  purpose — that  of  affording  improved 
transportation  on  equal  terras  to  all  persons  whom  it 
can  serve.  Whatever  is  necessary  for  the  lionest  and 
impartial  discharge  of  that  one  function  it  has  a  right 
to  do.  It  can  make  such  charges  as  will  yield  it  a 
profit  on  the  investment  of  its  capital;  but  it  must 
distribute  the  burden  of  its  charges  evenly  among  all 
its  patrons  in  proportion  to  the  service  rendered.  It 
is  desi2:ned  to  overcome  the  obstacle  of  distance :  but 
it  should  overcome  that  obstacle  for  the  benefit  of  all, 
and  it  is  not  within  its  objects  to  bring  one  locality 
nearer  to  market  than  another  and  to  make  the  latter 
support  it  in  doing  so.  It  is  a  public  servant,  not  a 
public  tyrant  which  can  enrich  and  magnify  its  favor- 
ites at  the  general  expense.  It  may  own  and  control  a 
franchise  in  its  tracks  and  rights  of  way,  but  it  has  no 
right  to  control  legislatures  or  to  compel  courts  and 
public  officers  to  do  its  bieldiug.  It  is  not  a  commer- 
cial providence  to  exalt  one  vessel  to  honor  and  con- 
demn another  to  dishonor.     It  is  not  a  political  guild 


154  The  Railways  and  the  Eepuhlic. 

to  sway  by  its  capital,  its  commercial  power,  aud  the 
work  of  its  employees  the  business  of  the  people.  It 
is  not  a  modern  baron  Avitb  supreme  power  over  the 
property  and  prosperity  of  its  subjects.  It  is  not  en- 
dowed by  the  state  with  the  power  to  rule  the  business 
of  the  nation,  dictating  in  what  manner  or  over  what 
routes  the  people  shall  carry  on  their  commerce,  or  the 
amount  of  business  that  they  shall  transact.  A  creat- 
ure of  the  state,  it  must  not  become  a  conspirator 
against  commerce,  either  by  building  up  monopolies 
for  its  favorites,  or  by  organizing  them  for  its  own 
profit. 


CHAPTER  V. 

PUBLIC    OBLIGATIOIiS    AND    COEPOEATE   PRACTICES. 

"  The  Railway  Questio:^,"  as  a  subject  of  popular 
agitation,  grows  out  of  the  disregard  and  defiance  by 
the  railways  of  their  public  obligations,  defined  in  the 
preceding  chapter,  in  the  practices  described  in  earlier 
chapters.  Many  of  these  practices  appear  to  be  ex- 
cusable and,  indeed,  necessary,  if  the  railways  are  to  be 
govei-ned  by  no  consideration  but  profit  to  themselves. 
In  defending  them,  their  advocates  assume  that  these 
corporations  are  mei'ely  business  enterprises,  organized 
to  make  money  for  the  ownei's.  But  even  on  this 
ground  the  defence  is  but  partial  and  imperfect.  Leav- 
ing out  of  sight,  for  the  moment,  the  public  character 
of  the  roads,  it  may  be  proved  that  many  of  their  cur- 
rent practices  are  unwise  in  the  lowest  business  sense, 
being  at  war  with  their  own  pecuniarj^  interests.  Every 
business  intended  to  supply  a  general  social  want  is 
most  effectually  built  up  by  affording  the  best  and 
most  extensive  service  possible,  at  the  lowest  charge 
consistent  with  a  fair  profit.  But  this  is  eminently  true 
of  a  corporation  whose  charter  is  perpetual,  and  whose 
operations  are  forever  linked  with  the  prosperity  and 
activity  of  the  community  it  serves.  If  its  managers 
are  incapable  of  any  higher  sense  of  duty  than  faith- 
fulness to  the  trust  they  hold  for  their  stockholders,  it 
is  still  true  that  they  are  bound  to  seek  the  public 


156  The  Railways  and  the  Jtejpuhlic. 

favor,  to  make  it  the  uncle viating  and  conspicuous  rule 
of  their  management,  that  every  customer  alike  shall 
get  from  them  the  best  bargain  they  can  afford  to  give, 
and  to  aim  to  build  up  in  trade  and  prosperity  the 
communities  along  their  own  line,  rather  than  those 
far  beyond  it.  Every  great  mercantile  business  in  the 
country  has  been  built  up  by  seeking  earnestly  to  offer 
the  best  service  equally  to  all,  by  fixed  prices,  small 
i:)rofits,  and  careful  study  of  the  public  wants.  Shall 
the  permanent  prosperity  of  a  railway  be  furthered  by 
the  opposite  plan  ?  By  violent  and  arbitrary  discrimi- 
nations? By  imposing  the  heaviest  possible  burden 
on  the  general  public,  while  acting  with  lavish  extrav- 
agance in  meeting  open  competition  or  in  distributing 
secret  favors  ? 

While  recoo-nizino;  the  fact  that  the  hi2;hest  interests 
of  the  railways,  viewed  simply  as  corporations  conducted 
for  profit,  are  opposed  to  many  practices  common  in 
their  management,  it  must  not  be  forgotten  that  there 
are  much  higher  and  more  imperative  restrictions  upon 
inequality  in  their  dealings  with  commerce.  Railways 
are  constituted  to  make  money ;  but  they  are  con- 
stituted to  make  money  consistently  with  the  public 
welfare.  As  against  public  I'ights,  corporate  interests 
must  always  be  subordinate.  The  conflict  between 
the  money-making  function  of  the  railway  and  its  pub- 
lic obligations  is  often  more  apparent  than  real ;  but 
in  many  cases  the  question  arises,  AVhich  shall  prevail? 
The  general  tendency  of  railway  practice,  as  we  have 
seen  in  the  preceding  pages,  has  assumed  that  "when 
the  securing  of  net  earnings  for  the  railways  conflicts 
with  public  justice,  justice  must  go  to  the  wall.  But 
no  such  assumption  can  be  permitted  in  a  public  in- 


PuUIg  Obligations  and  CorpovaU  Practices.        157 

quiiy  into  the  principles  which  should  govern  the 
operation  of  the  railway.  Broadly  defining  the  privi- 
leges of  the  railways,  it  may  be  said  that  they  should 
have  all  the  powers  necessary  for  the  profitable  prosecu- 
tion of  their  business,  consistently  with  the  public  wel- 
fare. Any  practices  may  be  allov\^ed  ^vhich  are  neces- 
sary for  profitable  transportation,  if  they  do  not  work 
any  material  damage  to  one  class  of  shippers  or  confer 
unfair  advantages  upon  another.  But  where  public 
justice  and  private  profit  conflict,  the  latter  must  be 
compelled  to  give  way.  The  extreme  powers  of  govern- 
ment employed  in  the  establishment  of  tlie  railway 
system  were  not  put  forth  in  order  to  make  the  earn- 
ing of  dividends  more  important  than  the  obligations 
of  justice  and  equity  upon  the  public  high^vays.  To 
argue  that  the  profits  of  capital  can  justify  the  imposi- 
tion of  unequal  burdens  iipon  commerce,  is  simply  re- 
viving, in  another  form,  the  aristocratic  idea  that  the 
aggrandisement  of  a  class  can  be  made  the  purpose  of 
government  to  the  detriment  of  the  general  welfjire. 

Both  the  best  interests  of  the  railways  as  business 
enterprises  and  their  obligations  as  creatures  and  agents 
of  government  are  involved  in  a  question  made  promi- 
nent in  the  congressional  debates  last  winter,  whether 
it  is  proper  for  railways  to  charge  more  for  a  short  haul 
than  for  a  long  one.  On  its  face  it  is  plain  that  no  rail- 
way can  profitably  carry  freight  a  thousand  miles  at 
the  same  or  a  less  rate  than  is  reasonable  for  the  same 
freight  for  half  the  distance;  yet  it  was  earnestly  con- 
tended on  the  floor  of  Congress  that  to  prohibit  the 
practice  would  inflict  hardship  upon  the  railways,  with- 
out any  benefit  to  shippers.  Now  it  may  happen,  in  a 
particular  and  exceptional  case,  that  it  is  better  for  a 


158  The  Railways  and  the  Bepullic. 

railway  to  take  less  for  a  long  haul  than  the  rate  which 
would  be  profitable  on  a  shorter  one.  If  a  railway  has 
empty  cars  at  a  competitive  point  from  which  freight 
can  be  taken,  provided  the  railway  makes  as  cheap 
rates  as  the  competing  route,  it  may  be  more  profitable 
to  accept  the  freight  at  a  reduced  rate  than  to  let  the 
cars  stand  idle  or  to  haul  them  back  empty.  But  even 
in  such  an  exceptional  instance  the  reduced  rates  ought 
at  least  to  earn  operating  expenses  and  contribute 
somethiuo;  to  the  fixed  chara:es  of  the  road.  These 
limitations  are  utterly  disregarded  in  the  practice  of 
the  roads,  and  were  generally  ignored  by  the  congres- 
sional defenders  of  the  discrimination. 

Two  notable  instances  of  this  class  have  been  promi- 
nent in  the  discussion,  the  Mattoou  and  Kankakee  case 
before  the  Illinois  Railroad  Commission,  and  the  Wi- 
nona and  Memphis  cotton  rate  in  the  House  of  Rep- 
resentatives. They  are  extreme  types  of  innumerable 
inequalities  between  local  and  through  tariffs.  They 
were  defended  by  the  same  plea.  The  rate  of  $3.25 
from  Winona  was  said  to  yield  no  more  than  a  fair 
return  on  the  expenses  and  capital.  But  at  Memphis 
the  question  is  whether  the  railway  shall  take  the 
freight  at  $1  for  nearly  twice  as  long  a  haul,  or  lose 
it  altogether,  and  it  was  reiterated  on  the  floor  of  Con- 
gress,  as  it  has  been  elsewhere,  that,  to  use  the  language 
of  Mr.  Stewart,  "if  the  railway  makes  a  small  profit 
by  taking  this  cotton  fi'om  Memphis,  it  is  for  the  bene- 
fit, not  only  of  the  railway,  but  of  the  local  shipper,  be- 
cause it  enaVjles  the  railway,  under  those  circumstances, 
to  give  better  terms  to  the  local  shipper."  If  the  rail- 
way makes  a  small  profit !  That  is  where  the  gist  of 
the  question  lies.    If  the  railway  does  not  make  a  small 


Pullic  OUigations  and  Corporate  Practices.        159 

profit  at  such  a  rate  it  is  plainly  imposing  the  cost  of 
the  freight  upon  the  local  shippers  or  the  stockholders. 
But  if  it  does  make  a  small  profit  on  hauling  cotton  at 
$1  a  bale  for  450  miles,  what  profit  does  it  make  by 
hauling  it  at  $3.25  a  bale  for  275  miles,  a  charge  per 
mile  more  than  five  times  as  great?  The  same  ques- 
tion was  presented  with  numerous  other  illustrations. 
The  competition  of  the  railways  from  New  Orleans  to 
New  York  with  the  coastwise  carriers,  it  was  said, 
puts  the  through  rate  from  one  point  to  the  other  at 
76  cents,  while  from  Atlanta  to  New  York  the  rate  is 
%1.  "  Has  the  Atlanta  man  any  reason  to  complain  if 
the  railway  imposes  only  a  reasonable  charge  for  the 
service  rendered  him?"  asked  the  same  gentleman  who 
undertook  tlie  defense  of  the  Winona  and  Memphis 
absurdity. 

These  arguments  always  raise  as  the  first  question, 
What  constitutes  a  fair,  reasonable  rate  ?  It  has  even 
been  earnestly  urged  that  the  charges  of  the  raihvays 
are  always  fair  and  reasonable,  and  that  this  is  proved 
by  their  constant  reduction  of  rates  for  the  last  twenty 
years.'""     Further,  the  president  of  the  Illinois  Central 

*  It  is  amusing  to  see  the  confidence  ^vith  •n-hicli  this  general  reduction 
of  the  cost  of  transportation  is  sometimes  cited  as  proving  the  magnani- 
mous generosity  of  particular  corporations.  Thus  the  fact  tliat  the  aver- 
age rate  of  freight  per  ton-mile  on  tlie  main  line  of  the  Pennsylvania 
Railroad  has  fallen  from  2.665  cents,  in  1865,  to  0.817  cent,  in  1883,  has 
been  widely  trumpeted,  accompanied  by  a  table  showing  how  vast  an 
income  the  railroad  company  has  surrendered  to  its  patrons;  that  is  to 
say,  how  much  greater  its  income  would  be,  if  it  collected  on  the  busi- 
ness of  1882  tlie  rates  of  1865.  The  diflerence  for  the  one  year  1883  is 
$53,213,949.11;  and  the  "reduction"  for  eighteen  years  amounts  to 
$818,947,486,261.  This  is  an  astonisliing  instance  of  giving  away  what 
the  giver  never  owned  or  possessed.  The  fact  is  kept  out  of  sight  that 
the  business  of  1882  is  the  result  of  the  progressive  reduction  of  rates  for 
many  years ;  and  could  never  have  existed  but  for  the  reductions.     The 


160  The  Railways  and  the  Bepublic, 

road,  in  his  defence  of  tbe  Mattoon  and  Kankakee  case, 
made  a  plausible  plea  for  the  reasonableness  of  his 
Kankakee  rate  of  16  cents  for  56  miles,  because  it  was 
the  rate  fixed  by  the  Illinois  railroad  commissioners. 
But  this  avoids  the  point  at  issue ;  which  is  simply 
whether  that  rate  can  be  reasonable  when  the  same 
freight  is  carried  over  the  same  line  to  Mattoon,  a  dis- 
tance of  172  miles,  for  10  cents.  Relatively  to  rates 
which  had  previously  prevailed  it  was  doubtless  quite 
reasonable.  The  cost  of  woollen  goods  has  also  de- 
creased very  much  since  1865.  A  suit  of  clothes  can 
probably  be  bought  for  $50  which  would  have  cost 
$100  at  war  prices.  In  view  of  this  fact,  the  lower 
price  seems  fair  and  reasonable ;  but  if  the  reader 
should  buy  such  a  suit  at  $50,  and  should  learn  that 
the  tailor  had  sold  exactly  such  a  suit  to  his  next  cus- 
tomer at  $10,  he  would  be  sure  that  he  had  been 
cheated.  If,  moreover,  under  the  operation  of  our  laws 
the  tailor  had  obtained  the  exclusive  control  of  the 
business  of  supplying  clothing  in  central  New  York, 
and  should  establish  the  price  of  $50  for  such  a  suit  of 
clothing  in  Syracuse  as  he  sold  for  $10  in  Rochester, 
no  aro'ument  concernino;  the  fidr  and  reasonable  rates 
given  to  Syracuse  and  the  necessity  of  meeting  competi- 


ccmpany  increased  its  business  from  420,000,000  ton-miles  in  1865  to 
2,879,000,000  ton-miles  in  1883;  and  its  revenue  from  freights  increased 
from  §11,193,000  in  1SG5  to  $23,621,430  in  1882.  But  it  is  certain 
that  this  business  would  have  been  merely  nominal,  and  this  vast 
revenue  would  have  been  utterly  lost,  had  the  company  maintained 
the  rates  of  1865,  and  refused  to  meet  the  public  demand  for  lower 
freights,  made  reasonable  by  improvements  in  machinery  and  method. 
The  railways  as  well  as  the  country  at  large  have  greatly  profited  by  the 
steady  decrease  in  the  cost  of  transportation  for  many  years;  but  the  fact 
has  no  value  as  a  proof  of  reasonableness  or  equity  in  the  adjustment  of 
rates  by  the  managers. 


Piibl'iG  Obligations  and  Corporate  Practices.        161 

tion  at  Kochester  would  convince  the  Syraciisans  that 
the  clothing  business  did  not  call  for  radical  reform. 
And  the  Syraciisans  would  be  entirely  right.  How 
can  such  arguments  influence  an  intellect  able  to  put 
two  and  two  together?  For  while  the  rate  of  16  cents 
for  hauling  one  hundred  pounds  of  freight  5G  miles 
may  be  reasonable  enough  in  itself,  it  stands  side  by 
side  with  the  rate  of  10  cents  for  hauling  the  same 
goods  172  miles.  If  one  rate  is  fair,  what  must  the 
other  be? 

The  defence  of  the  discrimination  between  long  and 
short  hauls,  or,  to  define  it  by  its  real  cause,  between 
competitive  and  non-competitive  traffic,  is  founded  on 
the  claim  that  the  cost  of  interest  and  dividends  on 
capital  need  not  be  borne  by  all  freights  alike.  "The 
road  charges  very  little  profit  on  the  New  Orleans  cot- 
ton from  Memphis,"  said  Mr.  Fink  before  the  Senate 
Committee  in  1883,  "they  charge  nothing  perhaps  for 
the  use  of  the  investment  in  the  road ;  but  on  the  bale 
of  cotton  they  carry  from  Winona  to  New  Orleans  they 
must  charge  for  the  investment  made  in  the  road,  be- 
cause the  road  was  built  for  the  Winona  and  not  for 
the  Memphis  people."  What  authority  had  Mr.  Fink 
for  this  statement?  If  it  is  so,  the  road  seems  to  have 
gone  wofully  astray  from  its  original  intention.  So  far 
as  the  cotton  question  is  concerned,  the  road,  if  built 
for  the  benefit  of  Winona,  should  have  stopped  at  that 
place  and  given  its  exclusive  attention  to  the  trans- 
portation interests  of  that  town.  But  instead  of  that 
it  constructs  175  miles  of  additional  track  to  I^Iemjihis, 
by  which  cotton  is  hauled  at  rates  which  give  it  an 
advantage  of  |2.25  per  ton  in  the  New  Orleans  market 
over  the  cotton   of  the  Winona  shippers.     This  rate 

11 


162  The  llailways  and  the  Republic. 

confessedly  pays  little  or  no  return  to  tlie  capital  in- 
vested in  the  175  miles  of  road  from  AVinona  to  Mem- 
phis, and  the  deficiency  must  be  made  up  by  imposing 
charges  on  the  Winona  people,  proportionately  five  and 
a  half  times  as  large.  It  is  evident,  then,  that  whatever 
may  be  said  of  the  road  from  Winona  to  New  Orleans, 
the  other  portion  was  decidedly  not  built  for  the  bene- 
fit of  Winona,  but  for  the  benefit  of  Memphis  at  the 
expense  of  Winona. 

In  defence  of  the  discriminations  in  favor  of  com- 
petitive freight  in  Congress  last  winter,  it  was  strenu- 
ously denied  that  local  freight  is  compelled  to  bear  the 
burden  of  low  charges  on  through  freight.  The  author- 
ity of  Mr,  Alexander,  a  prominent  Southern  railway 
official,  was  quoted  by  several  Congressmen,  to  the  ef- 
fect that  no  railway  had  ever  raised  its  local  charges  to 
meet  the  loss  caused  by  lowering  its  through  rates. 
Supposing  this  to  be  a  correct  statement  of  fact,  it  is 
misleading,  as  an  attempt  to  show  that  no  burden  is 
placed  upon  the  local  shippers.  It  ignores  the  burden 
that  is  placed  upon  them  by  the  superior  opportunities 
given  to  their  competitors  in  exactly  the  same  line  of 
business;  and  the  equally  significant  fact  that  it  prac- 
tically raises  their  rates  by  confining  the  general  reduc- 
tion of  freight  charges  to  competitive  traffic.  When 
railway  rates  have  been  reduced  fifty  jier  cent,  on 
through  traffic  within  the  last  ten  yeai's,  and  local  rates 
have  virtually  remained  unchanged,  the  burden  of  the 
local  shippers  has  been  practically  doubled,  no  matter 
what  sophistry  may  be  used  to  conceal  the  fact. 

Under  the  present  system  of  management  it  must  be 
admitted  that  the  railway  officers  are  often  under 
practical  compulsion  to  accept  freight,  at  competitive 


Public  Obligations  and  Corporate  Practices.        163 

points,  at  charges  lower  than  those  paid  by  local  traffic. 
The  cars,  perhaps,  are  on  hand  ;  employment  is  offered 
for  them  at  low  rates,  and  if  it  is  not  accepted  they  may 
be  left  indefinitely  without  employment.  If  it  appears 
that  the  rate  which  can  be  obtained  will  more  than 
pay  actual  operating  expenses,  it  is  hardly  possible  for 
the  manager  to  avoid  accepting  it.  The  smallest  con- 
tribution of  the  business  to  the  fixed  charges  of  the 
line  seems  to  him  better  than  no  earnings.  But  even 
this  consideration  cannot  apply  to  such  abnormal  and 
absurd  discrepancies  in  rates  as  some  of  those  we  have 
described.  For  example,  the  working  expenses  of  rail- 
ways in  the  United  States  are,  upon  the  average,  G5.21 
per  cent,  of  the  gross  earnings.  It  is  substantially 
within  the  margin  of  34.79  per  cent,  of  the  gross  earn- 
ings, then,  representing  the  entire  net  earnings  of  the 
road,  that  a  variation  of  rates,  between  points  approx- 
imately equal  in  distance,  might  be  made  without  in- 
curring actual  and  direct  loss  by  each  single  transaction. 
It  is  true  that  some  of  the  expenses  included  in  this 
computation  may  not  be  connected  with  the  transporta- 
tion of  freight,  and  the  percentage  of  net  earnings  on 
freight  may  be  somewhat  larger  than  on  the  aggregate 
business.  On  the  other  hand,  there  is  no  real  advantage 
in  takinoj  the  freicfht  at  all,  if  the  whole  marmn  of 
profit  is  taken  off.  If  a  very  small  advantage  may  be 
accepted,  when  no  consideration  but  the  profit  of  the 
railway  is  regai'ded,  it  may  be  conceded,  for  example, 
that  it  is  better  to  take  freight  to  New  York  from 
Chicago  at  a  rate  one  third  less  than  the  charge  from  a 
point  fifty  miles  east  of  Chicago.  A  rate  of  20  cents 
per  hundred  for  850  miles  may  yield  something  to  the 
road,  when  a  rate  of  30  cents  for  800  miles  would  not 


164  The  Railways  and  the  Republic. 

yield  more  than  a  fair  profit  upon  the  capital.  But 
between  this  instance  and  the  wide  discrimination  we 
have  discussed  there  is  no  analogy.  Mr.  Horr  ui'ges 
that,  if  the  railways  cannot  earn  6  per  cent.,  they  should 
be  allowed  to  earn  2  per  cent.'"'  But  if  the  average  net 
earnings  of  the  railways  amount  to  6  per  cent,  upon 
their  capital  stock  and  debt,  it  follows  that,  to  earn  2 
per  cent.,  they  must  have  a  revenue  equal  to  the  pres- 
ent average  expenses  of  operation,  and  one  third  of  the 
present  net  profits  besides ;  that  is,  of  76.80  per  cent, 
of  their  present  earnings.  In  other  words,  the  reason- 
ins:  of  Mr.  Horr,  if  altofrether  valid,  would  authorize 
a  raihvay  to  accept  through  fi'eight  at  rates  not  less 
than  76.80  per  cent,  of  its  charges  on  local  freight 
for  the  same  distance,  in  order  to  earn  2  per  cent,  on 
one  and  6  per  cent,  on  the  other,  or  to  charge  a 
rate  from  a  competitive  point  equal  to  that  Avhich  it 
would  charge  to  a  non-competitive  point  involving  only 
three  quarters  of  the  service.  This  has  no  application 
to  eccentricities  of  maua2:ement  in  which  one  rate  is 
from  three  to  five  times  as  great  as  another,  proportion- 
ately to  the  distance.  If  the  Memphis  rate  on  cotton 
yields  2  per  cent,  interest,  the  Winona  rate  must  yield 
24  per  cent.  The  difi:erence  between  a  rate  which  pays 
2  per  cent,  on  the  investment  and  one  which  pays  6  or 
even  10  per  cent,  will  never  account  for  such  discrep- 
ancies as  making  twice  the  charge  for  half  the  dis- 
tance. 


*  "  Suppose,  in  addition  to  doing  their  local  business,  they  can  carry  a 
portion  of  this  through  traffic,  and  can  get  it  on  a  basis  of  paying  only 
2  per  cent,  on  their  investment  instead  of  6,  ought  they  not  to  be  jjer- 
mitted  to  do  this  extra  work  ?  Most  clearly  they  should  be."— J/r.  Borfi 
Speech,  Congressional  Record,  ASth  Congress,  second  session,  p.  167. 


Piiblio  Olligat'ions  and  Corporate  Practices.        165 

But  ill  cases  to  which  the  argument  of  Mr.  Horr 
really  applies,  as  in  some  other  classes  of  discrim- 
ination, it  is  clear  that  the  fault  lies,  not  with  the 
men  who  make  the  rates,  but  with  the  system  under 
W'hich  they  are  obliged  to  act.  But  the  evil  must  none 
the  less  be  removed.  The  requirement  that  rates  shall 
be  uniform  to  all  shippers  grows  out  of  the  public 
character  of  the  railways,  and  cannot  be  laid  aside  or 
ignored  without  injury  to  the  public  interest.  Con- 
sider the  analogy  between  i-ates  imposed  b\^  railways 
and  taxes  imposed  by  municipal  corporations,  both 
creatures  of  the  state.  Large  property-owners  and  cor- 
porations doing  an  immense  business  within  the  city  of 
New  York  are  said  to  evade  municipal  taxation  by 
locating  their  residences  and  offices  outside  of  the  city 
limits.  Suppose  that  the  municipal  authorities  of  New 
York  should  invite  such  corporations  and  millionaires 
to  return,  upon  the  agreement  that  they  shall  pay  one 
fifth  or  one  sixth  of  the  rate  assessed  on  the  tax-payers 
at  large.  Would  not  sucli  a  proposition  raise  a  storm 
among  the  general  tax-payers,  to  which  the  complaints 
against  the  railways  would  be  a  mere  zephyr?  The 
public  mind  would  insist  that  in  taxation  rates  must 
be  equal ;  that  it  would  be  better  to  lose  much  revenue 
than  to  establish  a  class  favored  by  a  lower  rate  of 
taxation  than  that  assessed  on  the  general  public;  and 
that  the  city  must  not  reward  the  removal  of  property 
to  escape  taxation.  I  do  not  claim  that  the  circum- 
stances and  obli^rations  in  the  two  cases  are  identical. 
But  the  railway  corporation  and  the  municipal  coi-pora- 
tion  are  alike  creatures  of  the  state  and  derive  their 
powers  from  legislation;  the  freight  rates  ai'e  greater 
in  proportion  to  the  profits  of  business  than  the  tax 


16G  Tli&  Railways  and  the  Republic. 

rates ;  and,  in  both,  the  public  necessity  for  practical 
equality  is  imperative. 

This  subject  cannot  be  dismissed  without  an  avowal 
of  the  belief  that  the  practice  of  giving  shippers  who 
have  the  ability  to  select  a  competing  route  marked 
advantages  in  rates  over  those  whose  freight  is  wholly 
within  the  control  of  the  railway  is,  in  its  permanent 
effect,  injurious  to  the  railway  itself.  We  have  recog- 
nized and  conceded  the  powerful  inducements  which 
often  compel  railway  managers  to  adoj)t  this  policy. 
But  while  the  temporary  influences  may  be  irresistible, 
the  permanent  effect,  like  that  of  discounting  future 
receipts  at  high  rates,  is  costly  and  often  ruinous.  The 
present  methods  and  constitution  of  the  railway  busi- 
ness may  compel  it;  but,  if  so,  they  are  vicious  and 
require  reformation.  The  true  interests  of  a  railway 
are  best  promoted  by  building  up  the  business  of  the 
country  along  its  tracks,  and  ai'e  injured  by  offering  a 
premium  on  the  growth  of  business  in  sections  beyond 
its  lines.  In  the  end,  the  towns  and  farming  country 
lying  along  any  railway  must  furnish  its  main  strength 
and  support.  In  fact,  the  roads  not  only  depend  upon 
local  business  for  their  support,  but  often  draw  from 
it  the  means  of  competing  for  through  freight  at  less 
than  cost.  They  thus  offer  a  bribe  to  cajDital  and  en- 
terprise to  go  somewhere  else  than  on  their  lines,  and 
strike  at  the  very  root  of  their  own  future  and  perma- 
nent prosperity.  In  justification  of  the  wide  inequali- 
ties of  rates  between  local  and  comi^etltive  business, 
a  vague  effort  is  made  to  establish,  as  a  general  rule, 
that  the  business  which  is  unaffected  by  competition 
may  properly  be  made  to  pay  fixed  charges  and  divi- 
dends, leaving  all  competitive  business  to  be  taken  at 


Public  Obligations  and  Corporate  Practices.        167 

any  rate  wliicli  will  pay  the  cost  of  trausportation,  with 
a  possible  but  doubtful  margin  for  profit.  Neither  in 
the  interest  of  public  justice,  nor  in  that  of  the  rail- 
way itself,  can  it  be  accepted  as  a  rule  that  the  ship- 
pers whose  business  is  in  its  exclusive  control  shall 
bear  all  the  cost  of  the  investment,  while  competitive 
points  enjoy  the  use  of  the  road  without  sharing  that 
burden.  Such  a  rule  would,  in  effect,  throw  the  entire 
burden  of  the  enterprise  upon  one  locality  for  the 
benefit  of  another,  an  indefensible  act  of  government. 
This  rule  is  imaginary,  and  produced  to  suit  the  exigen- 
cies of  the  railway  apologists,  rather  than  adhered  to  in 
practice.  It  is  clear  enough  from  statistics  that  the 
average  rates  on  through  freight  froiu  the  West  to  the 
seaboard  do  pay  fixed  charges  and  a  fixir  return  on 
the  capital  invested.  The  largest  railway  owner  in  the 
United  States  declared,  less  than  two  years  ago,  that 
a  rate  of  fifteen  cents  per  hundred  pounds  from  Chi- 
cago to  New  York  afforded  profitable  business  to  his 
system  of  roads.  Whether  this  was  exact  or  not,  an 
average  charge  of  twenty  cents  from  Chicago  to  Xew 
York  is  so  profitable  that  it  is  almost  impossible  to  keep 
the  rival  railways  from  cutting  under  it  to  secure  busi- 
ness. This  fact  exposes  the  practice  of  making  a  charge 
proportionately  from  two  to  five  times  as  large  on  lo- 
cal business  in  a  strong  and  unenviable  light.  The 
vast  majority  of  such  inecpialities  in  rates  are  unmis- 
takably the  excesses  of  arbitrary  power  in  a  territory 
where  its  rnle  is  absolute;  and  the  burdens  imposed 
by  such  a  power,  where  it  has  full  control,  and  those 
borne  where  it  is  restrained  by  competition,  stand  in 
the  strongest  possible  contrast,  when  we  compare  the 
rates  accepted  by  the  railways  on  competitive  freights 


168  The  Railways  and  the  Bepullic. 

and  those  which  they  impose  on  shippers  who  ai'e 
wholly  at  their  mercy.  The  inequalities  heretofore 
discussed  show  that  a  thorough  reform  is  needed  in 
railway  management ;  and  the  fact  that  these  practices 
are  defended  bj^  representatives  of  the  leading  rail- 
w^ay  organizations  proves  that  this  reform  must  come 
from  a  power  outside  of  those  Avhich  at  present  con- 
trol the  I'ailways,  and  superior  to  them. 

It  has  been  sufficiently  shown  that  when  discrimina- 
tions in  rates  are  made  between  particular  sections,  lo- 
calities, or  interests,  in  the  regular  course  of  business, 
and  even  when  they  seem  to  be  forced  upon  the  rail- 
ways by  comj)etition,  they  work  gross  injustice  and 
amount  to  a  public  wrong.  But  in  this  discussion  it 
has  been  assumed  that  the  management  of  the  rail- 
way is  simply  a  business  management,  seeking  the  suc- 
cess of  the  corporation  as  a  business  enterprise.  Even 
these  evils,  thus  originated,  are  trifling  compared  with 
those  which  arise  when  the  interests  of  the  managers 
are  more  or  less  distinct  from  those  of  their  compau}-. 
And  this  is  often  the  case;  how  often  the  public  will 
never  know.  If  the  railways  are  to  have  the  power  to 
make  discriminations  which  seriously  aifect  the  profits 
of  trade,  there  is  not  and  cannot  be  any  certainty  that 
the  power  will  not  be  used  to  build  up  a  firm,  an  in- 
dustr}^,  even  a  city  or  district,  in  which  the  managers 
or  their  friends  have  pecuniary  interests,  at  the  expense, 
or  even  ruin,  of  their  competitors.  By  open  discrimi- 
nations, or  by  secret  rates,  drawbacks,  and  rebates,  a 
few  railway  managers  may  subject  to  their  will  every 
business  in  which  transportation  is  a  laige  element  of 
cost,  as  absolutely  as  any  Oi'iental  despot  ever  controlled 
the  property  of  his  subjects.     No  civilized  community 


Public  Ohligaiions  and  Corj)oraie  Practices.        169 

Las  ever  k^o^vn  a  body  of  rulers  with  such  power  to 
distribute  at  pleasure,  among  its  mercantile  classes, 
prosperity  or  adversity,  wealth  or  ruin.  That  this  is 
no  abstract  or  remote  danger  to  society  is  plain  to  any 
man  who  will  look  at  the  condition  of  trade  and  of 
mercantile  morals  in  the  United  States  to-day.  In  the 
most  important  branches  of  business,  engrossing  much 
of  the  daily  activity  and  productive  energies  of  the  na- 
tion ;  in  the  manufacture  of  iron  and  steel,  the  convey- 
ance and  marketing  of  stone,  brick,  grain,  lumbei-,  coal, 
petroleum,  live-stock,  and  all  kinds  of  meats,  the  cost 
of  transportation  is  so  large  an  element  in  tlie  final 
price  to  the  consuaier  that  a  material  difference  in 
that  cost  commonly  represents  far  more  than  the  entire 
average  profits  of  the  shipper.  The  result  is  that  men 
who  can  secure  discriminations  in  their  favor  from  the 
railways  can  defy  competition,  can  override  advantages 
of  locality,  of  superior  skill,  of  foresight  and  enterprise, 
and  can  accumulate  unearned  wealth,  to  be  divided,  if 
they  will,  with  the  agents  of  the  corporations  which 
are  thus  made  conspirators  with  them  to  plunder  the 
community.  True,  there  are  checks  upon  such  conspi- 
racies. The  competition  of  water  routes,  and  that  be- 
tween the  railways  themselves,  together  with  such  for- 
bearance on  the  part  of  managers  as  conscience  or  law 
and  public  opinion  may  dictate,  have  in  many  cases  set 
limits  to  the  evil.  But  it  is,  nevertheless,  the  case  to- 
day, recognized  more  or  less  completely  in  all  these 
branches  of  industry,  that  the  surest  way  to  commer- 
cial success  is  to  obtain,  by  fair  means  or  foul,  a  close 
alliance  of  friendship,  favor,  or  interest  with  some  influ- 
ential railway  official.  Such  a  state  of  affairs  is  radi- 
cally irreconcilable  with  a  healthy  and  natural  condi- 


170  Tlie  Railways  and  the  Repiiblic. 

tion  of  the  commercial  interests  affected.  lu  the  first 
place  it  is  destructive  of  the  democracy  of  commerce, 
which  extends  the  ri^-ht  of  manufacturinoj  or  distribu- 
tino;  merchandise  to  all  who  wish  to  en2;a2;e  in  it.  Let 
railway  favors  secure  to  particular  firms  in  prosperous 
times  the  greater  share  of  the  profits  of  any  business, 
and  in  unprosperous  years  all  that  can  be  gained,  and 
the  result  must  eventually  be  to  consolidate  that  busi- 
ness in  the  hands  of  a  favored  few.  Those  who  cannot 
obtain  such  favors  must  choose  ^^■hether  they  will  with- 
draw at  once  from  the  ruinous  struggle,  or  continue  it 
until  gradual  decay  forces  them  out.  Not  only  can 
the  great  enterprises  in  which  profits  are  determined 
directly  by  railway  rates  be  brought  into  dependence 
and  subserviency  by  this  policy  of  discrimination,  but 
through  these  the  retail  merchants  and  jobbers  in  the 
same  line  of  trade.  If  any  one  thinks  this  is  a  fancy  pict- 
ure of  the  tyranny  which  can  be  exercised  over  trade 
by  individual  discriminations,  let  him  study  how,  in  the 
anthracite  coal  trade,  in  which  every  mining  firm's  ex- 
istence is  dependent  on  the  toleration  of  the  transpor- 
tation companies,  they  extend  their  partiality  and  dis- 
crimination to  all  the  retail  coal  yards  dependent  on 
them  for  supplies.  The  result  of  corrupting  the  foun- 
tain head  is  inevitably  to  taint  the  stream  which  flows 
from  it.  Place  the  fundamental  enterprises  of  com- 
merce under  the  rule  of  favoritism,  and  the  same  evil 
qualities  will  extend  throughout  all  the  branches  of 
trade  drawing  their  supplies  from  these  sources. 

While  the  concentration  of  the  wealth  and  resources 
of  only  one  or  two  branches  of  trade  in  the  hands  of 
the  railway  plutocracy  has  been  complete,  the  effect  of 
such  discriminations,  even  upon  conlmercial  interests 


Public  OUigations  and  Corporate  Practices.        171 

in  which  their  agency  is  limited,  is  opposed  to  healthy 
business  independence  and  to  pure  business  morals. 
The  man  who  brings  capital,  ability,  and  energy  to  the 
prosecution  of  any  important  shipping  or  manufactur- 
ing trade,  finds  that  these  are  not  the  qualities  Avhich 
most  surely  command  success.    Knowledge  of  the  mar- 
kets, frugality,  and   unremitting  work   avail   nothing 
against  a  rival  who,  by  favor  of  the  railway,  secures  an 
advantage  of  five  or  ten  per  cent,  on  the  price  of  his 
commodities  in  the  cost  of  transportation.     This  evil, 
too,  works  insidiously,  and  rarely  comes  to  light  until 
great  injustice  is  effected.    Is  it  strange  that  those  who 
find  their  legitimate  business  disappearing  through  un- 
seen influences,  which  bafile  all  their  exertions,  should 
turn  to  reckless  speculation  as  a  last  hope  of  restoring 
their  fortunes?     Or  is  it  inexplicable  that,  when  the 
prosperity  which  merchants  have  built  up  by  3^ears  of 
toil,  integrity,  and  skill  is  sapped  and  ruined  by  the 
secret  favoritism  of  an  irresponsible  power,  they  should 
revenge  themselves  on  the  social  system  which  permits 
such  depredations  by  fraudulent  transactions,  dishonest 
bankruptcies,  or  mammoth  defalcations  ?    No  better  ex- 
planation of  the  decay  of  commercial  morals  is  needed 
than  the  rise  of  a  power  which  deals  out  commercial 
success  by  favoritism  or  selfishness,  and  nullifies  the 
efforts  of  honest,  independent,  and  conservative  trade 
to  obtain  a  competence. 

Finally,  the  worst  effect  of  this  obnoxious  practice  is 
that  it  destroys  the  individual  independence  and  self- 
respect  of  its  victims.  Give  to  any  man  or  set  of  men 
power  to  award  at  pleasure  prosperity  or  adversity, 
and  a  premium  is  placed  upon  sycophancy  and  cor- 
ruption.    A  man  whose  resources  depend  on  i-ates  of 


172  Tlte  Hallways  and  the  Bepublic. 

transportation  ^vill  naturally  be  slow  to  provoke  the 
enmity  or  opposition  of  railway  managers  who,  by  a 
rate  unfavorable  to  him,  or  a  secret  rebate  to  his  rivals, 
can  condemn  his  business  to  slow  but  certain  decay. 
Men  who  see  that  wealth  and  prosperity  can  be  gained 
by  conciliating  the  favor  and  serving  the  purposes  of 
those  who  hold  the  fiat  of  fortune  in  their  hands  are  ur- 
gently tempted  to  subserviency  and  time-serving.  It 
Avill  appear  elsewhere  that  the  greatest  protection  to 
the  railways  in  such  unjust  practices  is  the  fear  of  pi'o- 
voking  their  enmity  by  appealing  to  the  law  against 
them.  Nothing  could  more  strongly  tend  to  destroy 
individual  independence  and  personal  self-respect  in 
the  commercial  community  than  the  power,  held  by 
every  railway  managei",  by  manipulating  rates,  to  give 
rich  rewards  to  his  friends  and  to  serve  out  pecuniary 
punishment  to  all  who  oppose  his  plans  or  incur  his 
enmit}^ 

No  one  now  denies  the  injustice  or  danger  of  the 
exercise  of  this  power,  yet  railway  advocates  plead 
against  a  legal  prohibition  of  such  discriminations,  ar- 
guing that  the  power  to  make  them  is  necessary  in 
competing  for  the  business  of  the  lai-ge  shippers.  The 
highest  estimate  of  their  importance  in  legitimate  rail- 
way management  would  not  justify  the  continuance  of 
powers  which  may  be  used  for  the  purpose  of  favorit- 
ism between  shippers.  Concede  the  utmost  advantage 
that  any  railway  can  hope  to  obtain  b}^  favoring  large 
shippers  rather  than  small  ones,  and  it  has  no  weight 
against  the  fundamental  public  right  to  ec^uality  in  the 
action  of  railway  rates  upon  commei'ce.  Concede  in 
the  hii»:hest  dec^ree  the  convenience  of  rebates  or  draw- 
backs  in  the  transaction  of  railway  business,  yet  this 


Public  Ohllgations  and  Corporate  Practices.       173 

consideration  is  insignificant  beside  the  imperative  pub- 
lic necessity  of  preventing  the  discrimination  and  ftv- 
voritism  which  rebates  and  dra\ybacks  at  once  facili- 
tate and  conceal.  In  fact,  the  importance  of  these 
methods  in  legitimate  railway  operations  is  greatly 
overstated.  They  have  been  made  prominent  in  the 
defensive  pleas  of  the  railways,  in  order  to  divert  at- 
tention from  the  breaches  of  public  justice  and  equity 
with  which  they  are  practically  associated. 

Much  is  made  of  the  claim  that  the  railwa3's  must, 
for  their  own  interest,  give  large  shippers  lower  rates 
than  small  ones.  Within  very  narrow  limits  this  is 
true.  The  shipper  who  forwards  a  single  package  of 
freight  has  no  equitable  claim  to  proportionate  rates 
with  the  one  who  does  his  freighting  by  the  car  or 
train-load.  The  cost  of  the  service  is  greater.  But  the 
application  of  the  rule  is  limited  by  the  nature  of  rail- 
way transportation.  For  wholesale  shippers,  the  cost 
and  value  of  the  service  are  directly  proportionate  to 
the  number  of  car-loads  of  freight  transported  for  each. 
Further,  in  any  industry  the  largest  output,  and,  con- 
sequently, the  largest  freight  shipments,  Avill  be  secured 
by  giving  all  competitors  equal  freedom  to  reach  the 
market.  It  costs  the  railways  no  more  to  haul  ten 
car-loads  of  freight  for  ten  shippers  than  to  haul  them 
for  one;  while  the  true  interests  of  the  railways,  as 
well  as  of  the  public,  require  free  competition,  under 
which  all  shippers  have  equal  facilities. 

Under  certain  imaginable  circumstances,  indeed, 
there  may  be  an  appreciable  difference  in  the  cost  of 
service  between  transporting  a  large  number  of  cars  for 
one  shipper  and  the  same  number  for  several  shippers. 
But  this  is  rarely  any  ground  for  discrimination,  since, 


174:  The  Railways  and  the  Rejpuhlic. 

when  competing  shippers  require  such  service,  the  con- 
ditions are  practically  the  same.  One  furnace  or  roll- 
ing-mill may  have  twenty  car-loads  of  coal  hauled  a 
short  distance  daily,  w'here  two  others  want  but  ten 
each,  but  in  such  a  case  the  difference  of  cost  is  not 
material.  On  the  long  hauls,  where  important  discrim- 
inations have  mainly  been  enforced,  the  difference  in 
the  cost  of  service  to  large  and  small  shippers  is  inap- 
preciable. There  is  the  same  slight  difference  in  the 
cost  of  making  up  trains;  but  it  is  an  infinitesimal 
part  of  the  total  charges.  It  would  cost  the  railway 
a  little  more  to  collect  thirty  car-loads  of  refined  petro- 
leum from  a  half  dozen  refineries  at  Cleveland  than  to 
take  the  whole  number  from  the  Standard  yards;  but 
on  the  total  charges  for  transporting  that  freight  to 
New  York  or  Philadelphia,  the  extra  cost  cannot  make 
an  appreciable  difference.  In  all  such  cases,  too,  it  is 
easily  perceived  that  a  greater  quantity  of  freight  will 
be  moved  if  the  shipper  of  a  few  cars  is  placed  on  an 
equality  with  the  shipper  of  many.  The  result  of  the 
discrimination  in  favor  of  the  Standard  Oil  Company 
proves  that  the  concentration  of  the  business  in  the 
hands  of  one  great  establishment  restricts  its  aggre- 
gate volume.  The  irony  of  the  plea  in  its  defence  is 
exposed  wdien  we  remember  that,  while  the  railways 
justified  the  discriminations  on  the  ground  that  they 
must  favor  the  largest  shipper,  the  real  reason  why 
the  competing  refineries  could  not  make  equally  large 
shipments  w^as  that  the  railways  ^vould  not  give  them 
equal  rates.  •  It  were  as  reasonable  to  blindfold  a  man 
and  then  refuse  to  take  oft*  the  bandage  because  he 
shows  no  evidence  of  possessing  eyesight.  As  a  prac- 
tically universal  rule  the  difference  in  the  cost  of  ser- 


PuhliG  OUigaiions  and  Corporate  Practices.        175 

vice  between  handling  a  number  of  cars  for  various 
shippers  and  handling  the  same  number  for  one  ship- 
per is  too  slight  to  be  considered  as  an  element  in 
the  question  of  rates.  In  wholesale  shipments  the  car- 
load is  the  unit.  Shipments  smaller  than  the  car-load 
call  for  extra  services,  and  a,  higher  rate  should  be 
charged  upon  them.  On  all  large  shipments,  from  one 
car-load  to  any  numbei",  the  rate  should  be  uniform 
per  car-load. 

The  errant  of  a  rebate  or  drawback  on  the  freiirht 
payments  of  any  shipper  can  have  no  object  but  to 
conceal  the  amount  of  the  discrimination  in  his  favor. 
Under  this  practice  the  freight  of  the  favorite  shipper 
is  charged  on  the  manifests  and  books  of  the  railway 
at  the  reo-ular  tariff  rates.  The  a2:ents  and  clerks  vrho 
receive  and  forward  the  freight,  and  those  who  deliver 
and  collect  the  freight  charges,  have  no  record  showing 
a  lower  rate  to  him  than  to  others.  The  same  charires 
are  indeed  collected  of  him  at  first,  but  after  he  has 
paid  a  certain  amount  he  recovers  the  stipulated  rebate 
or  drawback,  on  the  presentation  of  his  freight  receipts. 
By  this  method  the  official  knowledge  and  record  of 
the  advantage  given  is  kept,  not  only  from  the  public, 
but  from  most  of  the  clerks  and  agents  of  the  com- 
pany. Practically  its  only  effect  is  to  conceal  the 
ti-ansaction,  and  it  is  foir  to  conclude  that  this  is  its 
real  purpose.  In  the  recent  Congressional  debates  on 
this  topic  the  ingenuity  of  two  or  three  supporters  of 
railway  practices  was  exercised  in  imagining  circum- 
stances which  might  make  this  practice  necessary.  Mr. 
Rice,  of  Massachusetts,  made  the  discoveiy  that  one 
shipper  might  find  another  underselling  him  by  the 
aid  of  "  secret  lower  rates,"  a  case,  certainly,  not  veiy 


176  The  Railways  and  the  RepxihUc. 

uncommon ;  and,  as  a  remedy,  lie  wished  the  right 
preserved  to  the  railways  to  grant  a  rebate  to  the  first 
shipper,  to  make  things  even.  If  it  were  made  cer- 
tain that  the  rate  of  rebate  would  be  the  same  to  all 
shippers, there  might  be  no  public  objection  to  it;  but 
the  very  nature  of  the  practice  excludes  such  equality. 
If  the  rebate  is  the  same  the  additional  j^ayments  and 
repayments  are  useless,  and  it  would  be  easier  to  re- 
duce the  regular  tai'iff  rate.  The  remed}^  for  the  secret 
rebates,  so  often  practised,  is  not  to  set  up  others  to 
equalize  them,  but  to  abolish  the  practice,  and  enact 
that  there  shall  be  no  "  secret  lower  rates."  Another 
suggestion  in  the  same  debate  was,  that  the  rebate 
might  be  necessaiy  to  allow  a  shipper  the  rate  fixed 
by  the  I'ailways  for  exportation,  when  he  had  been 
chai'ged  a  higher  rate  on  the  freight  which  was  ex- 
ported ;  while  another  was,  it  might  be  used  to  correct 
the  disadvantage  which  a  shipper  might  be  subjected 
to  by  lower  rates  granted  to  rivals  who  shipped  by 
other  roads,  as  if  a  railway  could  be  expected  to  re- 
fund to  every  shipper  alike,  after  the  freight  has  been 
carried  and  the  transaction  is  complete,  the  excess  of 
its  charges  over  those  of  a  rival.  But  if  such  an  efibrt 
of  the  imagination  had  any  foundation  in  fiict,  its  use- 
fulness or  fairness  would  have  no  bearing  on  the  prac- 
tice of  granting  secret  drawbacks.  The  correction  of 
an  ascertained  or  admitted  overcharge  has  nothing  to 
do  with  this  practice.  For  such  refunding  of  money 
honestly  due  the  shipper,  the  vouchei'S  of  the  company 
may  properly  be  issued.  But  to  put  in  the  hands  of 
a  railway  manager  the  power  to  grant  secret  draw- 
backs on  the  regular  freight  charges  of  a  shipper 
whom   he  may  favor,  is  as  dangerous  to  commercial 


PuIUg  Obligations  and  Corporate  Practices.        177 

freedom  as  the  old  Freuch  system  of  issuing  lettres  de 
cachet  Wcas  to  personal  liberty. 

Against  every  such  practice  the  public  interest  de- 
mands the  complete  equality  of  shippers.  The  favor- 
ite argument  of  railway  men,  that  the  public,  not  un- 
derstanding the  details  of  railway  business,  cannot 
judge  of  the  necessity  or  usefulness  of  these  practices, 
simply  shows  that  those  who  urge  it  do  not  under- 
stand the  question.  When  they  imagine  that  any 
pleas  of  utility  or  convenience  can  justify  inequalities, 
they  fail  to  understand  the  primary  and  imperative 
necessity  of  the  equality  wliich  must  be  guaranteed  to 
all  persons  in  railway  services.  In  some  respects  there 
may  be  reason  for  waiving  the  public  convenience,  in 
order  to  encourage  and  develop  railway  interests.  But 
the  demand  for  equality  is  fundamental  and  indefeasi- 
ble. No  convenience  in  the  transaction  of  railway 
business,  no  pecuniary  enhancement  of  the  fortunes  of 
managers,  can  condone  the  public  crime  of  establishing 
preferences  and  ftivoritism  in  rates.  Any  method  of 
transacting  business  which  can  be  used  to  cover  such 
preferences,  or  any  argument  which  can  be  adduced 
to  support  tiiem,  embodies  an  assault  on  public  justice. 

Another  variety  of  discrimination  which,  to  some  ex- 
tent, partakes  of  the  nature  of  individual  preferences, 
Las  been  defended  on  the  same  ground  as  tlie  defence 
of  tlie  discrimination  against  localitii^s.  It  is  tlie  policy 
of  charging  "  what  tlie  fi'eight  will  bear."  Extreme 
instances  of  this  practice  were  earnestly  defended  on 
the  floor  of  Congress  last  winter.  No  doubt  the  ques- 
tion what  the  freiglit  will  bear  is  often  an  important 
consideration  in  I'ailway  problems ;  but  this  is  no 
justification  of  the  practice  of  the  Central  Pacific  Rail- 

12 


178  The  Railways  and  the  Bepublic. 

way,  wliicli  was  defeucled  by  its  Congressional  apolo- 
gists. "  If  I  have  a  mine  yielding  ore  worth  six  dol- 
lars a  ton,"  asked  Mr.  Budd,  "  and  my  competitor  near 
by  has  one  which  yields  ore  worth  forty  dollars  a  ton, 
am  I  to  be  shut  out  of  shipping  my  ore  to  market  be- 
cause I  cannot  afford  to  pay  as  high  a  rate  as  my 
rival  V  This  was  said  in  defence  of  the  Central  Pa- 
cific Railway,  which  requires  shippers  of  ore  from  the 
Nevada  mines  to  submit  assays  of  their  product  to  the 
railway  managers,  and  varies  its  freight  charges  with 
the  richness  of  the  ore.  The  reply  to  this  somewhat 
pathetic  inquiry  is  obvious.  If  ore  is  not  of  enough 
value  to  pay  a  fair  freight  for  carrying  it  to  the  reduc- 
tion works,  it  is  not  the  duty  of  the  railway  to  make 
up  for  this  by  carrying  it  at  a  loss.  If  the  railway  at- 
tempts to  make  charitable  compensation  to  unfortunate 
mining  operators,  it  must  either  put  the  loss  on  its 
stockholders  or  on  the  miners  of  good  ore.  Neither 
practice  is  equitable.  The  railways  are  not  built  to 
rectify  the  inequalities  of  fortune,  either  at  the  cost  of 
their  stockholders  or  at  that  of  fortunate  mine-own- 
ers. If  the  ore  is  not  worth  paying  a  fair  freight,  we 
see  no  other  course  for  the  owner  of  the  mine  than  the 
somewhat  trying  one  suggested  by  Mr.  Budd,  of  wait- 
ing until  nature  puts  forty-dollar  ore  into  his  mine. 
But  this  is  not  the  real  point  at  issue.  No  one  has 
ever  accused  the  Central  Pacific  Railway  of  wasting  its 
capital  by  carrying  ore  for  unlucky  mine-owners  at  less 
than  cost.  The  character  of  that  corporation  makes 
the  fact  that  it  carries  low  grade  ore  at  a  certain  rate 
conclusive  evidence  that  the  rate  affords  a  profitable 
return  for  the  service  performed.  But  if  cheap  ore  can 
be  profitably  carried  at  this  rate,  all  ore  can  be  profit- 


Public  OhUgations  and  Corporate  Practices.       179 

ably  carried  at  the  same  rate ;  and  the  higher  charge 
on  richer  ores  is  excessive  and  unjust.  The  railway 
exerts  its  power  to  grasp  part  of  the  profits  of  the 
prosperous  miner,  and  the  miner  submits  rather  than 
have  his  works  stopped.  In  this  case  the  cost  of  ser- 
vice is  disre2;arded  in  fixing  the  frei^-hts.  Xow  the  in- 
expert  public  may  be  unable  to  determine  the  exact 
cost  of  service,  but  is  intelligent  enough  clearly  to  see, 
in  the  rate  fixed  on  cheaper  ores,  proof  that  the  high 
rates  on  better  ores  are  excessive  and  extortionate. 
The  railway  has  no  right  to  a2:)propriate  any  part  of 
a  shipper's  good  fortune,  or  superior  judgment,  or 
greater  industry;  and  the  practice  is  little  else  than 
robbery. 

It  has  already  been  observed  that  the  question  what 
the  freight  will  bear  is,  within  proper  limits,  an  ele- 
ment in  the  calculations  of  managers.  If  the  coal, 
which  lies  valueless  in  some  remote  mountain  of  Penn- 
sylvania or  West  Virginia,  will  not  bear  the  charges 
necessary  to  repay  the  capital  used  in  constructing  a 
railroad  to  bring  it  to  market,  the  road  will  not  be 
built.  If  it  \vill  bear  such  rates — that  is,  if  after  pay- 
ing them,  the  price  which  the  owner  gets,  when  his  coal 
is  brought  into  market,  remunerates  him  for  the  cost 
of  mining,  and  leaves  him  a  profit — the  building  of  the 
railway  will  benefit  both  him  and  its  builders.  In 
such  calculations  the  relation  between  cost  of  service 
and  what  the  freight  will  bear  is  the  essential  element 
which  determines  whether  the  enterprise  will  pay.  It 
is  evident,  too,  that,  under  different  conditions  and  in 
different  localities,  both  the  burden  which  the  freight 
must  bear  and  that  which  it  can  bear  will  vary  widely. 
A  coal  mine  which  can  only  be  reached  by  a  line  in- 


180  The  Railways  and  the  Republic. 

volving  heavy  grades  and  expensive  tunnels  must  sup- 
port heavier  charges  than  cue  which  is  reached  by  a 
level  and  inexpensive  route;  while  a  gold  or  silver 
mine  can  pay  a  higher  rate  for  securing  the  advantages 
of  railway  transportation  than  a  limestone  quarry. 
But  while  a  railway  is  perfectly  justified  in  rejecting 
freight  which  will  not  bear  charges  equal  to  the  cost 
of  service,  it  has  no  rio-ht  to  extort  excessive  rates  be- 
cause  the  freight  is  so  valuable  that  its  owner  can  en- 
dure them  without  ruin.  Moreover,  rates  for  different 
shippers  and  different  localities  must  be  uniform  on 
the  same  class  of  freight ;  otherwise  the  way  is  open 
to  onerous  discriminations  which  may  deprive  private 
enterprise  of  the  just  advantages  of  their  thrift  or  fore- 
sight, and  the  public  of  the  natural  cheapness  or  supe- 
riority of  their  products.  Such  a  course  must  ulti- 
mately be  injurious  to  the  railway  which  adopts  it. 
Perhaps  an  iron-bound  monopoly  like  the  Centi'al 
Pacific  can,  for  a  time,  swell  its  apparent  profits  by  the 
practice,  but  in  the  end  the  result  must  be,  as  we  have 
seen  it  to  be  in  the  long-and-short-haul  abuse,  to  dis- 
courasje  the  o-rowth  of  the  business  which  has  to  take 
all  the  burden  it  can  bear,  and  on  which  the  permanent 
prosperity  of  the  railway  de2:)euds,  and  to  encourage 
that  the  rates  on  which  are  beyond  its  control.  The 
worst  feature  of  the  practice,  however,  is  that  it  opens 
the  way  and  serves  as  a  cloak  to  arbitrary  personal 
discriminations  between  shippers,  the  most  utterly 
vicious  and  indefensible  of  railway  abuses. 

Another  practice  which  is  almost  universal  among 
railways  is  the  attempt  to  control,  by  discriminating 
rates,  the  disposition  of  freight  bej'ond  the  line  of  the 
company;  or,  what  is  identical  in  principle,  although 


Public  Ohligations  and  Corporate  Practices.       181 

different  in  application,  making  the  charges  on  a  certain 
class  of  freight  the  means  of  dictating  to  the  shipper  in 
what  manner  he  shall  dispose  of  other  freights  in  his 
business.  Of  this  abuse,  too,  the  Central  Pacific  Rail- 
way practises  the  most  extreme  form  in  its  notorious 
special-contract  system.  By  these  contracts  the  rail- 
way agrees  to  give  a  shipper  a  large  reduction  from 
regular  rates,  on  condition  that  he  shall  ship  all  freight 
by  the  railway,  using  ocean  transportation  for  no  part 
of  his  business.  The  railway  doubtless  secures  by  this 
means  a  lai'2;e  share  of  the  frei^rht  business  which 
would  otherwise  seek  the  more  economical  but  less 
rapid  carriage  by  sea;  and  this  use  of  its  power  over 
that  portion  of  the  merchant's  freight  which  has  of 
necessity  to  be  carried  by  railway  probably  results 
in  the  enhancement  of  its  profits.  But  it  is  to  be  noted 
that  this  makes  no  difference  in  the  cost  or  profits  of 
the  service  rendered  in  any  particular  instance.  The 
railway  can  haul  a  car-load  of  groceries  just  as  cheaply 
for  a  merchant  who  has  brought  a  ship-load  of  some 
other  merchandise  to  San  Francisco  by  water  as  for 
one  who  has  not.  The  service,  cost,  and  profit  to  the 
railway  are  identical  in  both  instances,  but,  by  a  dif- 
erence  in  the  cliarges,  the  Central  Pacific  Company 
imposes  a  virtual  prohibition  upon  all  merchants  to 
whom  its  service  is  essential  on  any  part  of  their  lousi- 
ness, from  using  the  water  route  on  such  shipments  as 
it  may  be  for  their  advantage  to  have  transported  in 
that  way.  Practically  the  same  2")osition  was  shown  to 
be  taken,  in  the  suit  against  the  Lake  Shore  and  ]\Iichi- 
gan  Southern  Railroad,  arising  out  of  discriminations 
in  favor  of  the  Standard  Oil  Company.  The  officers  of 
the  railway,  on  the  witness  stand,  admitted  that  the 


182  The  Railways  and  the  Eejpuhlic. 

discriminations  had  been  persistently  and  permanently 
imposed,  and  justified  them  on  the  plea  that  the  Stand- 
ard gave  the  road  all  its  business.  Other  considera- 
tions were  presented,  such  as  the  largest  shipper  plea; 
but  the  essential  claim  of  the  railway  officials  was  that 
an  agreement  on  the  part  of  the  shipper  to  send  all  his 
freight  over  a  railroad  justifies  the  road  in  giving  that 
shipper  a  large  advantage  over  another  requiring  exact- 
ly tbe  same  service.  In  other  words,  they  recognize 
the  obligation  to  charge  equal  rates  to  all  shippers 
only  so  long  as  it  is  convenient  to  do  so.  They  will 
charge  equal  rates  if  nothing  offei's  them  any  induce- 
ment to  do  otherwise;  but  if  any  future  or  hypothet- 
ical advantage  is  to  be  gained  they  wnll  make  rates  to 
reward  the  shijoper  who  obeys  their  wishes  on  matters 
independent  of  the  transaction  in  question,  or  to  punish 
one  who  does  not.  The  practical  operation  of  this  dis- 
crimination is  as  truly  an  imposition  upon  the  public 
as  its  theory  is  an  infraction  of  the  equitable  obliga- 
tions of  the  railways.  Its  I'esult  is  evident  in  the  Central 
Pacific  case.  The  merchant  must  either  j)ay  expensive 
railway  charges  on  that  class  of  merchandise  which  is 
susceptible  of  cheap  transportation  by  water,  or  he 
must  abandon  that  pai't  of  his  trade  to  which  the  ser- 
vices of  the  railway  are  essential.  Such  dictation  as  to 
the  routes  of  general  business  is  not  to  be  tolerated  in 
the  public  interest.  It  is  the  right  of  trade  to  use  all 
the  different  routes  best  adapted  to  the  economical  car- 
riage of  its  respective  classes  of  merchandise.  It  is  a 
public  right  that  articles  for  general  consumption  shall 
be  brought  to  consumers  by  the  least  costly  methods. 
Any  manipulation  of  railway  rates  which  increases  the 
cost  of  a  great  staple  to  the  consumer  is  an  invasion 


Public  Obligations  and  Corporate  Practices.       183 

of  popular  rights.  Any  dictation  to  commerce  as  to 
the  routes  by  which  it  shall  transport  its  goods  is  an 
assault  upon  the  liberty  of  trade. 

The  same  principle — of  making  the  pecuniary  inter- 
est of  the  company  superior  to  its  obligation  of  im- 
partiality— affords  the  foundation  for  the  custom  of 
making  special  rates  on  freight  coming  off  or  going  to 
particular  connecting  lines,  so  as  to  compel  the  freight 
to  take  these  routes.  This  is  almost  univ^ersally  prac- 
tised in  the  movement  of  throuo-h  freiirhts  to  and  from 
the  East  and  West.  For  instance,  the  Pennsylvania 
Railroad  transports  from  Pittsbui-gh  to  the  seaboard  a 
lar2:e  amount  of  o-min,  which  comes  to  it  from  the  Pitts- 
burgh,  Fort  Wayne,  and  Chicago  road,  and  for  which  it 
receives  a  certain  share  of  the  through  rate  made  on  the 
shipment  at  Chicago.  Suppose  its  share  of  the  rate  to  be 
12^  cents  per  hundred  pounds;  indicating  that  12^  cents 
per  hundred  pounds  is  a  reasonable  rate  for  hauling 
grain  in  large  quantities  over  its  line,  when  the  freight  is 
delivered  at  its  terminus  already  loaded  in  cars,  and 
ready  for  shipment.  Under  its  obligation  to  give,  to 
all  shippers  alike,  the  same  rate  for  the  same  service,  any 
one  else  who  can  offer  grain  at  Pittsburgh,  already  loaded 
in  cars,  is  entitled  to  the  same  rates.  Suppose  that  the 
grain  was  brought  to  Pittsburgh  by  river,  "would  the 
shipper  get  it  carried  thence  to  Philadelphia  or  New 
York  for  the  same  charge  that  is  made  for  exactly  the 
same  service  on  freio;ht  comino:  from  the  connecting 
lines  of  the  Pennsylvania  Kailroad  ?  It  is  very  well 
known  tliat  he  would  not.  The  Pennsylviinia  Railroad 
has  established,  by  its  rates,  an  effective  veto  on  the 
shipment  of  freiglit  from  the  river  points  to  tlie  East 
by  any  other  than  the  all-rail  route;  and  shippers  hav- 


184r  The  Railways  and  the  Republic. 

ing  freight  which  could  be  carried  advantageously  by 
river,  and  thence  by  rail  over  the  Pennsylvania  Rail- 
road, if  charged  the  same  rate  others  obtain  on  exactly 
the  same  service,  cannot  utilize  that  cheap  and  natural 
highway  of  commerce.  The  same  rule,  varied  accord- 
ing to  circumstances,  is  in  force  on  every  railway  doing 
a  through  business.  By  universal  custom  the  railways 
assert  the  riiiht  to  dictate  how  the  frei2:ht  shall  be 
brought  to  tlieir  lines,  and  even  what  shall  be  done 
with  it  after  transportation.  Thus  the  Pittsburgh, 
Fort  Wa3'ne,  and  Chicago  Railway  brings  two  car-loads 
of  flour  to  its  terminus  in  Pittsburgh.  If  one  car-load 
is  to  be  shipped  to  Philadelphia,  over  the  Pennsylvania 
Railroad,  it  pays  a  certain  fixed  rate;  if  the  other  car- 
load stops  in  Pittsburgh,  it  is  charged  another  rate, 
materially  greater.  What  right  has  the  Fort  Wayne 
I'oad  to  enact  that  the  consumers  of  Pittsburc;h  shall 
pay  a  higher  rate  on  their  flour  as  a  penalty  for  not 
aflfordinii;  business  to  another  road  ?  What  ric^ht  has 
any  road  to  assume  the  prerogative  of  dictating  where 
or  how  the  freight  which  it  carries  for  the  public  shall 
be  disposed  of? 

In  these  cases,  advantages  are  given  in  rates  to  the 
freights  of  connecting  lines,  because  the  Pennsylvania 
Railroad  has  a  controllino:  interest  in  the  stock  of  the 
other  corporations.  It  is  for  its  pecuniary  advantage 
that  freight  coming  to  its  line,  or  going  from  it,  shall 
furnish  business  to  its  Western  roads.  But  that  pecun- 
iary advantage  does  not  accrue  to  it  in  its  character  as 
a  transportation  agency  between  Pittsburgh  and  Phila- 
delphia, but  in  its  character  as  an  investor  in  the  stock 
of  other  roads.  It  is  not  as  a  railroad  company,  but 
as  a  stock-owning  corporation,  that  it  favors  these  roads. 


PiiMic  Obligations  and  Corporate  Practices.       185 

The  confusion  of  these  functions  is  of  doubtful  charac- 
ter and  may  easily  lead  to  dangerous  practices.  We 
have  seen  in  the  illustration  how  it  may  lead,  and  in 
fjict  has  led,  to  the  almost  total  disuse  of  the  facilities 
for  transportation  offered  by  the  Ohio  and  tlie  Missis- 
sippi rivers  between  the  East  and  West.  But  what  is 
there  to  prevent  the  same  practice  being  carried  to  still 
greater  lengths  ?  If  a  railway  company  may  invest  in 
the  stock  of  another  railway  and  declare  that  freight 
coming  from  the  line  of  the  latter  shall  be  carried  at  rates 
which  practically  prohibit  through  freight  from  other 
sources,  why  may  it  not  extend  the  same  discrimination 
to  other  classes  of  business?  Why  may  it  not  take  a 
partnersliip  in  immense  coal  fields,  for  instance,  and 
establish  rates  which  send  the  operators  of  other  coal 
mines  into  insolvency?  There  is  no  legal  justification 
for  the  dictation  to  shippers  by  one  railroad  that  their 
freight  must  pay  tribute  to  another  road.  Such  prac- 
tices are  destructive  of  the  independence  of  trade,  and 
their  sole  purpose  is  either  to  uphold  a  monopoly  in 
transportation,  or,  as  was  illustrated  in  the  oil  business, 
to  build  up  a  monopoly  in  the  business  affected.  No 
plea  of  profit  on  investments,  which  one  company  may 
have  made  in  the  shares  of  another,  can  excuse  such  a 
distinct  attack  on  the  right  of  every  man  to  obtain  the 
materials  of  his  business  where  he  chooses,  and  to  sell 
his  products  where  he  can  find  the  best  market. 

It  is  customary  to  defend  this  practice  by  the  plea 
that,  to  move  freight  f)r  the  long  distances,  it  is  neces- 
sary for  the  different  lines  of  railway  to  share  a  rate, 
which,  divided  between  the  lines  over  which  it  passes, 
affords  a  comparatively  small  rate  to  each.  The  answer 
to  such  an  argument  is  very  evident.    There  is  not  the 


186  The  Railways  and  the  Repvhlic. 

slightest  objection,  from  the  public  standpoint,  to  mak- 
ing cheap  pro-i'ata  charges,  so  long  as  they  are  equal  to 
all.  But  in  fact  the  practice  does  not  favor  the  cheap 
transportation  of  freight  for  long  distances.  It  is  not 
conducive  to  the  cheap  movement  of  the  crops  that  the 
advantage  of  the  pro-rata  charge  should  be  restricted 
to  certain  especially  favored  lines.  The  favoring  of 
one  or  two  lines  is  what  is  objected  to,  and  that 
preference  restricts,  instead  of  aiding,  the  shipment  of 
through  freight.  It  is  demonstrable  that  the  grain 
raised  alons;  the  banks  of  the  Missouri  could  be  trans- 
ported  to  the  seaboard,  by  the  Missouri,  Mississippi, 
and  Ohio  rivers  to  the  upper  ports  of  the  latter  river, 
and  thence  by  rail  to  Baltimore  and  Philadelphia,  at  a 
marked  economy  over  the  all-rail  route,  if  the  roads 
whose  main  lines  run  from  that  river  to  the  Eastern 
cities  would  make,  on  such  shipments,  the  same  rates 
they  give  on  the  same  service  when  the  grain  reaches 
them  by  connecting  lines.  They  would  be  paid  exact- 
ly the  same  rate  for  exactly  the  same  service,  and  the 
increased  volume  of  traffic  would  largely  increase  their 
revenues  on  their  main  lines.  But  this  practice,  which 
is  defended  as  affording  cheap  transportation  to  the 
West,  operates  as  a  bar  to  the  use  of  the  water  route 
for  a  portion  of  the  distance.  It  is  a  fundamental 
obligation  of  the  railways  not  to  discriminate  against 
freight  which  comes  to  it  from  one  route,  because  its 
officers  or  its  investments  are  benefited  by  the  earnings 
of  some  third  road.  The  New  York  Central  has  no 
right  to  give  freight  from  the  Lake  Shore  a  better  rate 
than  frei2;ht  from  the  lake,  on  account  of  the  Vander- 
bilt  investments  in  the  Lake  Shore;  nor  has  the  Lake 
Shore  the  risrht  to  crive  better  rates  to  the  New  York 


Public  Obligations  and  Corporate  Practices.        187 

Central  freight  than  to  that  offered  it  by  the  Erie,  be- 
cause the  Vaiiderbilt  investments  are  large  in  the  New 
York  Central.  The  only  safe  rule  is  that  laid  down 
twenty  years  ago  by  Judge  Strong,  and  recently  re- 
peated by  the  Circuit  Court  of  the  United  States,  in  a 
case  in  which  exactly  this  question  arose  between  two 
roads  in  Colorado.  It  is  that  every  railroad  is  bound 
to  give  the  same  rate  to  similar  freight  offered  under 
similar  conditions,  irrespective  of  the  question  whether 
or  not  the  freio-lit  comes  to  it  from  a  route  to  which  it 
is  friendly.  The  business  of  the  railway  is  to  transport 
the  freight  offered  to  it,  giving  equal  rates  to  all  for 
the  same  service,  and  it  is  most  emphatically  none  of 
the  railway's  business  what  is  done  with  the  freight 
before  comino:  to  its  line  or  after  leavinir  it. 

In  the  discussion  of  the  various  inequalities  of  the 
railway  tariffs,  in  the  preceding  pages,  it  has  been  rec- 
ognized that  it  is  impossible  to  fix  any  exact  rule  for 
determining  the  equitable  charges  for  each  of  the  infi- 
nite variety  of  services  which  the  railroads  are  called 
upon  to  perform.  Such  a  task  would  be  hopeless, 
whether  attempted  by  critics  of  the  i-ailwa}'s  or  by  leg- 
islation. No  iron-bound  rule  can  be  established  to 
govern  the  inexhaustible  multiplicity  of  the  various 
conditions  which  they  must  meet.  But  the  general 
principles  of  equity  and  justice  which  should  govern 
all  their  operations  are  clearly  defined  by  the  law,  and 
are  evident  from  the  natural  requirements  of  public 
rights.  These  principles  furnish  rules  which  are  uni- 
versal and  2iieet  all  cases.  The  general  principles 
which  should  be  respected  in  the  operations  of  the 
railways  are  stated  in  the  first  two  rules  given  below, 
from  which  the  succeeding  ones  may  be  regarded  as 
deductions: 


188  The  Railways  and  the  Repuhlic. 

1.  The  public  character  of  the  railways  requires 
practical  equality  in  the  services  of  each  to  all  who 
employ  them.  No  discrimination  in  rates  or  prefer- 
ence in  the  despatch  of  freights  is  consistent  with  that 
character. 

2.  The  business  character  of  the  i-ailways  forbids 
any  demand  that  they  shall  perform  services  for  any 
part  of  the  public  which  do  not  yield  them  a  fair  com- 
pensation on  the  capital  invested, 

3.  The  equality  demanded  by  the  public  obligations 
of  the  railway  consists  in  making  the  rates  charged  to 
all  shippers  bear  a  practically  equal  proportion  to  the 
cost  of  service  performed.  To  perform  a  greater  ser- 
vice for  one  shipper  or  locality,  at  the  same  charge 
made  to  another  for  a  less  service,  is  as  great  an  in- 
equity as  to  perform  the  same  service  for  a  less  charge. 

4.  The  railway  cannot  be  requii'ed  I)y  the  public  in- 
terest to  make  its  charges  cover  full  profit  on  capital 
invested.  In  many  cases  the  road  is  unaljle  to  obtain 
business  at  such  charges,  and  must  accept  lower  rates. 
But  it  is  a  public  wrong  for  the  railway  to  discard  this 
element  in  its  charges  to  one  shipper  or  se't  of  shippers, 
and  impose  it  upon  another,  so  as  to  inflict  a  disad- 
vantage or  burden  upon  the  latter. 

5.  Any  attempt  to  secure  increased  pi'osperity  to 
any  section  or  locality,  by  transporting  its  freights  at 
less  charges  than  yield  such  a  fiiir  compensation  to  the 
railways,  is  a  violation  of  both  the  preceding  rules,  and 
is  beyond  the  proper  province  of  the  railways. 

6.  The  claim  that  has  been  made  for  a  reduction  of 
railway  I'ates  in  certain  sections,  on  account  of  a  de- 
pression of  values  in  the  products  of  those  sections,  is 
not  just,  unless  it  can  be  shown  that  the  existing  rates 


Public  OUigations  and  Corjoat^ate  Practices.        189 

are  in  excess  of  the  fair  profit  to  ^Yhich  the  railways 
are  entitled.  It  is  not  the  business  of  the  railways  to 
repair  the  misfortunes  or  hardships  of  any  section  or 
interest  at  the  cost  of  other  interests. 

7.  Distance  being  an  essential  element  in  the  cost  of 
service,  neither  the  railways  nor  the  public  have  a 
right  to  disregard  it.  The  people  of  one  locality  have 
no  right  to  ask  that  they  shall  be  placed  on  an  equal- 
ity with  those  of  another  locality  requiring  less  trans- 
portation, and  the  railways  must  not  bring  a  point  one 
thousand  miles  away  from  market  nearer  in  charges 
than  one  two  hundred  and  fifty  miles  away.  As  dis- 
tance is  not  the  only  element  in  the  cost  of  service,  the 
charges  cannot  be  required  to  be  in  exact  pi'oportiou 
to  the  number  of  miles  the  frei2:ht  is  to  be  hauled ; 
but  it  should  have  due  weig-ht  in  determining;  the  dif- 
ferent  rates  of  any  railway, 

8.  The  I'ates  of  other  railways  for  a  given  service 
do  not  constitute  an  authoiitative  criterion  for  the 
rates  which  a  certain  road  may  impose.  The  capital 
required  to  construct  the  road,  the  power  necessary  to 
haul  freight  over  its  grades,  and  the  volume  of  busi- 
ness determining  its  rates,  may  be  much  greater  or  less 
in  one  case  than  in  another.  But  the  rates  whicli  a 
road  charges  for  service  to  shippers  at  one  point  may 
fairly  be  taken  as  an  indication  of  the  proper  charges 
on  the  same  class  of  freight  to  shippers  at  another 
point  on  the  same  line. 

9.  The  railroad  is  chartered  solely  to  aft'oixl  im- 
proved facilities  for  transportation  on  its  own  line,  and 
it  should  confine  itself  strictly  to  that  work.  To  re- 
quire anything  of  it  outside  of  the  pi'oper  performance 
of  that  work  is  foreign  to  the  purpose  of  its  creation, 


190  The  Railways  and  the  BepuUic. 

while  its  voluntary  assumption  of  powers  beyond  that 
function  may  amount  to  a  gross  usurpation.  This  rule 
will  be  found  to  prohibit  several  practices  to  which  the 
railways  are  prone.     Thus  : 

The  railway  must  not  use  its  power  to  raise  or 
depress  the  prices  of  any  commodity  over  which  its 
transportation  may  give  it  influence.  It  is  not  within 
its  province  to  judge  between  the  producer,  the  con- 
sumer, or  the  middle-man,  as  to  whether  prices  should 
be  lower  or  hicrher. 

It  must  not  use  its  power  to  regulate  the  operations 
of  any  industry  to  which  it  furnishes  transportation, 
or  to  restrict  production,  either  directly  or  by  support- 
ing combinations  for  that  purpose.  Its  participation  in 
any  plan  to  create  an  artificial  scarcity  of  any  staple 
amounts  to  a  conspiracy  against  the  public. 

It  has  no  right  to  exert  its  corporate  influence,  or  to 
expend  its  funds,  for  the  purpose  of  aflfecting  the  action 
of  other  railways,  either  in  fixing  rates  or  in  other 
matters  which  may  affect  its  own  business. 

It  must  not  assume  the  work  of  police  or  sanitary 
regulation,  by  giving  preferences  to  one  class  of  busi- 
ness over  another,  on  the  plea  that  it  is  preferable  in 
the  interest  of  the  public  health  or  the  public  mor- 
als. It  has  no  right  to  say  that  it  is  for  the  public 
health  that  it  shall  charge  twice  as  much  for  the  trans- 
portation of  one  staple  as  for  another  requiring  ser- 
vices of  equal  cost.  Such  an  assumption  is  wholly  be- 
yond its  province,  and  usually  serves  only  as  a  cloak 
for  wanton  discriminations. 

It  must  not  exert  its  corporate  influence  in  political 
questions  or  in  legislation.  The  railway  has  a  rio-ht 
to  present  its  side  of  the  case  when  legislation  is  pro- 


Public  Ohlujatlons  and  Corporate  Practices.        191 

posed  which  may  affect  its  legitimate  interests ;  but  to 
support  its  presentation  by  distributing  favors  among 
those  who  can  affect  legislation  is  corrupting  and  in- 
admissible. 

10.  A  clear  deduction  from  the  rule  that  the  rail- 
way must  perform  equal  services  at  equal  rates,  and 
must  not  seek  to  extend  its  power  beyond  its  duty  on 
its  own  line,  is  that  it  has  no  right  to  inquire  whence 
freight  was  obtained,  or  what  is  its  destination.  Its 
sole  business  is  to  transport  the  freight  from  the  point 
at  which  the  shipper  offers  it  to  the  point  to  which  he 
wishes  it  transported.  To  say  that  if  it  comes  from  a 
certain  locality  or  over  a  certain  route,  or  is  going  to 
a  certain  locality  or  route,  liigher  rates  will  be  charged, 
is  an  unjustifiable  interference  with  trade,  which  is  nev- 
ertheless commonly  practised  in  railway  management. 

11.  The  railway  has  no  right  to  inquire  what  the 
shipper  will  do  with  other  freiglit  than  that  which  he 
offers  for  transportation.  To  declare  that  if  he  uses  it 
in  a  certain  trade  or  manufacture,  or  that  if  he  trans- 
ports some  of  his  freight  by  sea,  or  gives  a  portion  of 
his  freight  business  to  some  rival  route,  he  will  be 
charo-ed  hi^-her  rates  than  others  is  an  infraction  of 
commercial  liberty. 

The  limitation  of  the  railways  to  their  single  pur- 
pose of  building  and  operating  public  highways  for 
the  benefit  of  commerce,  as  insisted  on  in  these  pages, 
is  a  necessary  deduction  from  their  public  o})ligatious. 
As  long  as  they  confine  themselves  to  the  performance 
of  their  legitimate  functions,  they  are  of  inestimable 
public  service,  and  their  existence  and  estaldishment 
should  be  freely  encouraged,  their  rights  and  property 
strictly  guarded,  and  their  success  duly  recognized  and 


192  The  Railways  and  the  Bepuhlic. 

applauded.  But  if  they  have  in  any  instances  trans- 
gressed the  just  and  legal  limits  of  their  powers,  the 
transgression  must  be  noted  and  the  public  danger 
recognized.  If  they  have  built  up  private  wealth  by 
favoritism,  encouraged  the  growtli  of  monopolies,  com- 
bined to  raise  the  prices,  or  artificially  to  restrict  the 
supplies  of  any  staple,  organized  combinations  to  pre- 
vent fi'ee  competition  in  their  own  or  any  other  busi- 
ness, conspired  against  the  development  of  the  country 
by  seeking  to  prevent  the  building  of  other  routes,  or 
sought  to  control  politics  by  corrupting  voters,  legis- 
lators, or  courts — if  they  have  committed  any  or  all  of 
these  transgressions,  they  have  made  a  dangerous  at- 
tack upon  the  public  welfare,  and  demonstrated  by 
their  own  acts  the  necessity  of  a  thorough  reform.  The 
public  experience  is  sufficient  to  determine  whether 
there  have  been  such  invasions  of  popular  rights.  It 
is  not  necessary  to  show  tliat  such  dangei'ous  practices 
are  universal.  One  such  monopoly  as  the  Standard 
Oil  Company  is  evidence  enough  that  the  railways 
possess  a  power  inconsistent  with  the  independence 
of  trade.  One  political  and  commercial  oligarchy  like 
the  Central  Pacific  Railway  should  convince  the  nation 
that  the  growth  of  such  irresponsible  and  unscrnpu- 
lous  powers  must  be  made  impossible.  We  need  not 
wait  until  all  enterprise  is  ruled  by  railway  managers 
and  all  wealth  distributed  among  their  favorites,  be- 
fore we  take  action  for  the  maintenance  of  popular  in- 
dependence in  trade  as  well  as  in  society.  Tlie  mere 
fact  that  the  railways  can,  if  they  choose,  usurp  pow- 
ers so  inconsistent  with  the  objects  for  which  they 
were  established  and  so  dangerous  to  the  public  inter- 
est, makes  it  necessary  to  place  such  powers  completely 


Public  Obligations  and  Corporate  Practices.       193 

beyond  tbeir  reach.  What  legislation  is  necessary  may 
be  a  difficult  and  yet  unsolved  problem ;  but  that 
there  is  an  imperative  and  urgent  necessity  for  a  pub- 
lic remedy  which  shall  not  only  forbid  such  distortions 
of  the  public  character  of  those  corporations,  but  shall 
thoroughly  and  completely  eradicate  them  and  make 
them  impossible,  no  one  can  doubt  who  has  considered 
their  true  bearing  and  effect. 

It  is  an  interesting  subject  of  speculation  whether, 
if  such  practices  are  necessary  for  the  successfid  oper- 
ation of  the  railways,  any  enhancement  of  the  national 
wealth  or  development  of  the  material  resources  of 
the  country  could  compensate  for  the  domination  of 
business  interests  by  a  class  of  privileged  plutocrats, 
the  destruction  of  commercial  freedom,  and  the  deteri- 
oration of  the  mercantile  classes  into  dependants  and 
time-servers  of  railway  magnates.  Such  a  question  has 
little  practical  bearing,  as  it  is  clearly  possible  to  pre- 
serve a  useful  and  profitable  existence  to  railway  en- 
terprise freed  from  such  abuses.  But  suppose  it  were 
not  possible,  would  the  gain  of  wealth  in  the  nation  be 
any  compensation  for  the  decay  of  popular  rights  and 
the  degradation  of  individual  character?  I  think  not. 
The  land  ''where  wealth  accumulates  and  men  decay" 
has  long  been  proverbially  destined  to  ultimate  disaster. 
It  would  be  far  better  for  the  people,  and  would  secure 
a  stronger  and  higher  national  life,  to  preserve  the  old 
methods  of  life,  the  slow  and  restricted  operations  of 
commerce,  with  the  frugal  but  withal  independent  and 
self-respecting  chai'acter  of  the  people,  than  to  gain  ten- 
fold the  marvellous  growth  of  Avealth  that  lias  been 
created  by  the  railway  system,  and  with  it  place  the 
vast  operations  of  commerce  under  the  rule  of  an  irre- 

13 


194:  The  Railways  and  the  Iiej)uhlic. 

sponsible  oligarchy  of  corporation  magnates,  and  trans- 
form the  once  independent,  npright,  national  character 
into  subservience  or  submission,  such  as  either  accepts 
fortune  from  the  fcxvor  of  its  masters  or  sinks  into  ob- 
scurity or  fsiilure  on  account  of  their  opposition.  Bet- 
ter national  poverty  than  national  wealth  with  the  peo- 
ple divided  into  the  class  ^vhich  grants  prosperity,  the 
class  which  earns  it  as  servants,  and  the  class  which 
can  only  express  its  dissatisfaction  by  discontented  mut- 
tering and  destructive  disorder.  If  we  must  choose  be- 
tween railway  prosperity  combined  with  the  power  of 
these  corporations  to  distribute  wealth  by  discrimina- 
tions, on  the  one  hand,  and  national  poverty  on  the 
other,  let  us,  for  the  preservation  of  freedom,  justice, 
and  national  self-respect,  wipe  out  the  railway  system, 
with  the  wealth  that  it  has  created  in  the  last  three 
decades,  and  go  back  to  the  old  national  life  of  re- 
stricted resources  but  unrestricted  independence. 


CHAPTER  VI. 

THE    POOLING    POLICY. 

Having  reviewed  the  several  classes  of  railway  dis- 
crimiuations  as  they  are  practised,  and  explained  their 
injustice,  illegality,  and  dangerous  effects  upon  social 
and  political  equality,  we  come  to  the  question,  In  what 
direction  shall  a  remedy  be  sought.  Can  the  opera- 
tion of  economic  laws  be  relied  upon  to  correct  these 
abuses,  or  must  the  new  power,  which  has  been  created 
within  the  last  two  generations,  be  always  regarded 
as  a  dangerous  element  in  society,  to  be  constantly  and 
jealously  watched  by  the  public  and  bound  down  by 
restrictive  legislation  ?  The  spirit  of  American  institu- 
tions in  dealing  with  all  evils,  and  especiallj^  with  those 
arising  in  the  operations  of  commerce,  naturally  seeks 
the  metliod  which  Avill  involve  the  least  interference 
with  freedom,  consistent  with  the  general  safety.  The 
commerce  which  is  governed  the  least,  is  governed  the 
best.  In  that  respect  the  claim  that  the  remedy  for 
all  inequalities  in  the  practical  working  of  the  rail- 
wa3'S  is  the  regulating  influence  of  tlie  laws  of  trade, 
and  especially  the  corrective  influence  of  competition, 
is  very  plausible.  But  it  is  confronted  by  tlie  fact 
that  hitherto,  in  the  history  of  the  railway  system,  the 
laws  of  trade  have  not  prevented  the  maintenance  of 
inequitable  rates,  the  infliction  of  unjust  discriminations, 
or  the  domination  of  great  industries  by  monopolies 


196  The  Railways  and  the  Rejpvhlic. 

fostered  by  the  railways.  Before  accepting  this  ex- 
perience as  final,  however,  and  rejecting  economic  law 
as  an  insufficient  corrective,  it  is  necessary  to  inquire 
whether  those  laws  have  had  a  fair  trial.  The  value  of 
competition  as  a  remedial  agency  cannot  be  determined 
without  considering  how  far  the  present  operation  of 
the  railway  system  limits  its  workings,  and  also  how  far 
the  prevalent  railway  policy  seeks  further  to  suspend 
and  abolish  it.  This  leads  us  to  examine  the  latest 
and  most  powerful  development  of  the  railway  system, 
best  known  as  "pooling" — although  Mr.  Fink  desires 
to  have  the  pools  called  "associations,"  and  Mr.  G.  R. 
Blanchard  suggests  the  dignified  term  "traffic  unity." 

Pooling  was  defined  by  W.  H.  Vanderbilt  and 
H.  J.  Jewett,  in  their  letter  to  the  Hepburn  Com- 
mittee of  the  New  York  legislature,  as  "a  successful 
plan  for  preventing  railway  wars  and  securing  uni- 
formity of  rates."  This  definition  is  open  to  two  criti- 
cisms: First,  that  it  fails  to  give  any  clear  indication 
of  what  pooling  really  is;  and,  second,  that  it  is  a  ques- 
tion of  fact  whether  pooling  has  either  prevented  rail- 
way "wars  or  secured  uniformity  of  i-ates.  Mr.  Fink  has 
asserted  that  the  purpose  and  effect  of  pooling  is  to 
prevent  discriminations,  and  "  the  establishment  and 
maintenance  of  uniform  tariffs."  Neither  of  these  state- 
ments gives  any  definition  of  the  pool.  In  general, 
the  term  is  applied  to  any  com1)ination,  between  rail- 
ways engaged  in  competitive  traffic,  to  maintain  rates 
by  suspending  competition.  More  specifically,  how- 
ever, pooling  includes  the  only  means  by  which  such 
combinations  have  been  made  successful ;  to  wit,  the 
suspension  of  competition  by  uniting  the  traffic  in 
one  common  total  or  "  pool,"  from  which  the  business, 


The  Pooling  Policy.  197 

or  its  proceeds,  is  divided  among  the  various  companies 
in  fixed  percentages.  The  polic}'  of  combining  to  sus- 
pend competition  is  an  old  one ;  but  tlie  conception 
of  a  "  pool,"  comprising  the  business  of  all  the  roads 
and  holding  it  beyond  their  individual  control,  dates 
from  Mr.  Fink's  entrance  into  the  management  of  the 
trunk  lines,  has  been  applied  under  his  supervision,  and 
is  regarded  as  his  creation.  The  detailed  devices  by 
which  the  business  is  combined  and  its  proceeds  di- 
vided vary  with  the  nature  of  the  traffic  pooled,  and 
with  the  agreements  which  are  practicable  in  each  case. 
The  most  general  form  of  the  freight  pool  is  an  agree- 
ment allotting  a  percentage  of  the  traffic  to  each  road, 
and  providing  that,  if  any  road  exceeds  its  share  of  the 
business,  freight  shall  be  diverted  from  it  to  the  other 
roads  until  the  agreed  proportion  is  established,  thus 
taking  away  the  incentive  for  any  road  to  attempt  to 
enlarge  its  business  by  lowering  rates.  Some  such 
"traffic  pool"  as  this  has,  at  one  time  or  another,  con- 
trolled most  of  the  competitive  freight  business  of  the 
country.  The  other  leading  variety,  the  "  money  pool," 
deals  not  w^ith  the  freight  or  passengers,  but  with  the 
earnings.  The  money  received  for  transportation  is 
brought  together  in  one  total,  and  divided  in  fixed  per- 
centages among  the  combining  roads.  If,  as  is  general- 
ly the  case,  the  gross  earnings  are  pooled,  this  arrange- 
ment inflicts  a  much  greater  loss  upon  the  railway 
which  exceeds  its  allotment  than  the  trafiic  pool.  For, 
in  the  traffic  pool,  the  excess  of  traffic  is  simply  diverted 
from  the  road ;  but  in  the  money  pool  the  road  which 
carries  more  than  its  share  performs  the  excess  of  ser- 
vice without  any  compensation ;  and  the  actual  cost  of 
this  work  is  clear  loss. 


198  The  Railways  and  the  Republic. 

There  has  of  late  years  been  a  strenuous  eflfort  to  rep- 
resent the  pool  as  something  else  than  a  device  to 
destroy  competition,  as,  in  fact,  a  corrective  of  railway 
evils.  The  definition  of  the  railway  presidents  already 
quoted  is  one  instance,  and  Mr.  Fink's  testimony  be- 
fore the  Senate  Committee,  in  1883,  is  another.  "The 
'princijjal  object  of  this  association,"  said  he,  "is  to 
establish  equitable  and  uniform  tariffs  over  the  roads 
represented  on  the  committee,  as  far  as  their  competi- 
tive traffic  is  concerned."  The  qualification  contained 
in  the  last  clause  was  made  more  significant  by  the 
addition :  "  It  has  nothing  to  do  with  local  traffic." 
But  why  has  it  nothing  to  do  with  local  traffic?  Are 
not  equitable  and  uniform  tariffs  as  much  to  be  desired 
in  the  case  of  local  traffic  as  in  any  other  ?  Should  not 
the  "  prevention  of  unjust  discriminations,"  the  arrange- 
ment of  rates  "  so  that  they  will  bear  equally  upon  dif- 
ferent localities,"  and  "  conducting  the  transportation 
business  in  a  business-like  way,  and  in  the  interest  of  the 
public  and  the  companies,"  which  ]\Ir.  Fink  elsewhere 
alleges  to  be  the  object  of  pooling,  be  sought  as  stren- 
uously on  local  as  on  through  shipments?  The  fact  is, 
as  Mr.  Fink  says,  that  the  fostering  and  beneficial 
operations  of  the  pool  have  no  connection  whatever 
with  local  traffic,  and  the  reason  is,  simply,  because 
the  one  influence  that  the  pool  seeks  to  suspend  is  al- 
ready absent  from  the  local  traffic.  Non-competitive 
traffic  is  never  turned  into  the  common  fund  and  parti- 
tioned among  the  different  corporations.  If  there  is 
any  purpose  of  uniform  methods  or  mutual  assistance, 
apart  from  the  prevention  of  competition,  why  is  not 
the  local  traffic  of  the  combining  roads  brought  under 
remedial  provisions  of  the  pool,  and  its  proceeds  dealt 


The  Pooling  Policy.  199 

out  in  fixed  percentages?  It  is  simply  because  the 
pool  is  a  device  to  avoid  competition ;  and  ^vbel•e  the 
traiSc  is  not  competitive  that  there  is  no  demand  for  it. 
Mr.  Fink  has,  on  several  occasions,  declared  that  pool- 
ing does  not  prevent  competition.  On  the  face  of  it, 
this  assertion  seems  to  be  a  confession  of  failure ;  and 
the  natural  comment  is  that,  if  pools  have  not  prevented 
com^Jetition,  it  has  been  from  no  lack  of  effoi't  on  Mr. 
Fink's  part.  But  what  Mr.  Fink  really  means  is,  doubt- 
less, that  there  are  certain  influences  of  competition, 
always  indirect  or  partial,  which,  in  the  nature  of  the 
case,  pooling  cannot  suspend.  The  competition  of  the 
water  routes,  for  instance,  acts  directly  on  the  grain- 
carrying  traffic  from  Chicago,  and  indirectly  on  the  same 
traffic  carried  on  parallel  routes  farther  south.  The  pos- 
sibility that  fresh  capital  may  be  brought  in  to  build 
new  competing  railways  has  also  been  a  disturbing 
factor  in  the  pool.  But  whatever  may  be  the  influence 
of  competition  in  these  imperfect  forms,  the  great  object 
and  aim  of  the  pooling  policy  is  to  susjiend  direct  com- 
petition between  the  railways.  Whatever  other  admin- 
istrative duties  may  be  performed  by  its  machinery  are 
subordinated  to  the  grand  central  object  of  preventing 
independent  and  competitive  action  by  the  railways. 
When  the  pool  has  succeeded  in  abolishing  direct  com- 
petition it  is  a  success;  when  the  natural  forces  of 
trade  break  its  artificial  fetters,  and  the  competing  com- 
panies make  their  rates  in  accordance  with  their  own 
facilities  for  transportation,  the  pool  is  a  failure.  Uni- 
form and  equitable  tariffs  and  stable  rates  are  very  de- 
sirable; but  when  an  organization  prevents  uneven 
rates  only  where  there  is  danger  of  competition,  and 
leaves  them  without  check  everywhere  else,  we  may  be 


200  The  Railways  and  the  Bepuhlio. 

permitted  to  doubt  whether  those  praisevrorthy  pur- 
poses are  its  priucipal,  or  even  among  its  real  objects. 

The  fact  that  pooling  combinations  have  for  their 
main  and  controlling  object  the  suspension  of  competi- 
tion, is  apparent  in  their  history.  That  history  shows, 
too,  that  the  railway  wars  which  furnish  the  excuse 
for  pooling,  and  mark  the  e2:)ochs  of  its  development, 
have  been  waged  with  the  sole  object  of  preventing 
natural  competition,  and  of  forcing  the  competing  lines 
into  combination.  The  bitter  railway  contests  of 
1874-76  were  occasioned  by  the  opening  of  the  Bal- 
timore and  Ohio's  connection  with  Chicago,  and  its 
establishment  of  a  differential  rate  to  Baltimore  four 
cents  lower  than  to  New  York.  The  other  Chicago  lines 
attacked  this  policy,  resolving  to  destroy  the  revenue  of 
the  new  rival,  together  with  their  own,  until  it  should 
be  driven  into  an  agreement  in  accordance  with  their 
views.  The  effort  to  abolish  the  differential  rate  was 
a  fiiilure ;  but  the  ruinous  and  wasteful  character  of  the 
wars  resulted  in  bringing  the  lines  together  in  1877, 
organizing  the  trunk-line  pool.  The  success  of  that 
organization,  during  the  first  two  or  three  years  of  its 
existence,  lay  in  the  completeness  with  which  it  abol- 
ished competition ;  and  the  conflicts  that  have  broken 
out  at  intervals  since  have  displayed  the  evident  deter- 
mination of  the  combining  lines  to  prevent  natural  and 
legitimate  competition,  and  to  make  all  independent 
action  so  ruinous  that  no  railway  could  permanently 
continue  it.  This  has  been  evident  in  the  operations, 
not  only  of  the  trunk-line  pool,  but  of  all  the  other 
pooling  organizations,  which  have  sprung  up  under  its 
example,  from  the  Atlantic  to  the  Pacific.  While  near- 
ly every  railway  in  the  country  has  joined  in  the  pool- 


The  Pooling  Policy.  201 

ing  policy,  none  has  ever  clone  so  until  some  portion  of 
its  traffic  was  subject  to  competition,  and  then  none 
but  competitive  traffic  has  ever  been  made  subject  to 
the  authority  of  tlie  pools. 

The  failure  of  the  pools  to  suspend  competition  en- 
tirely, and  the  purpose  of  the  railways  to  weaken  or 
destroy  its  influence  at  all  hazards,  were  signally  shown 
in  the  closing  act  of  the  great  railway  conflict  which 
has  been  raging  with  varying  bitterness  for  more  than 
a  year  and  a  half.  It  was  characterized  by  such  extraor- 
dinary features  as  the  reduction  of  entire  schedules 
of  freio-ht  rates  one  third  or  one  half  at  a  sino^le  blow, 
and,  when  its  ends  were  supposed  to  have  been  at- 
tained, by  an  advance  on  rates  of  50  per  cent,  in  a  day. 
One  notable  step  was  that  of  the  Pennsylvania  Rail- 
road, in  reducing  its  emigrant  passenger  rate  from  the 
Eastern  cities  to  Chicago  and  St.  Louis,  in  a  single  day, 
from  $13  to  $1.  This  was  for  the  avowed  purpose,  as 
was  every  other  salient  act  of  this  corporation  during 
the  conflict,  of  attacking  the  revenues  of  its  rivals,  and 
forcing  them  to  restore  the  supremacy  of  the  pool. 
The  true  nature  and  purpose  of  all  this  warfare  was 
shown  by  the  bargain  which  is  supposed  to  have  closed 
it.  The  conflict  has  been  frequently  represented  to 
leo-islatures  and  Conixressional  committees  as  an  instance 
of  the  ruinous  effect  of  competition  ;  but  the  manner  in 
which  the  two  greatest  corporations  proposed  to  estab- 
lish peace,  on  the  terms  which  suited  them,  shows  that 
it  was  waged  by  them  with  the  clearly  defined  purpose 
of  driving  out  indej^endent  competition. 

The  trouble  with  both  the  New  York  Central  and 
the  Pennsylvania  railroads,  was  that  independent  com- 
peting lines  had  been  built,  or  were  in  process  of  con- 


202  The  Railways  and  the  Eejyuhlic. 

struction,  into  territory  which  they  regarded  as  pecul- 
iarly their  own.  The  Buffalo  and  West  Shore  jiroject, 
the  possibility  of  which  had  been  pointed  out  by  the 
late  J.  AV.  Garrett  in  1880,  had  paralleled  the  former 
to  Buffalo.  The  opportunities  for  loading  down  the 
property  with  fictitious  capitalization  were  too  much 
for  its  projectors,  and,  as  a  consequence,  a  few  months 
of  the  v/ar  which  followed  its  opening  sent  it  into 
bankrui^tcy.  At  the  same  time  another  independent 
line,  the  South  Pennsylvania  Bailroad,  was  buildinc;  a 
connecting  link  between  the  competitors  of  the  Penn- 
sylvania Railroad,  at  PittsVjurgh,  and  the  western  ter- 
minus of  the  Reading  at  Harrisburg.  This  was,  in  all 
its  bearings,  a  peculiarly  legitimate  enter2:)rise.  An  ex- 
penditure of  $10,000,000  would  open  up  vast  mineral 
districts  in  southern  Pennsylvania,  give  the  anthracite 
coal  regions  a  new  Western  outlet,  and  complete  a 
shorter  and  more  direct  through  route  from  New  York 
to  Pittsburgh.  The  troubles  of  Mr.  F.  B.  Gowen,  in 
the  management  of  the  Reading  Railroad,  the  Eastern 
connection  of  this  line,  brought  him  into  relations  with 
Mr.  Vanderbilt,  who  saw  the  opportunity  to  retaliate 
upon  the  Pennsylvania  Railroad  for  the  support  it  was 
believed  to  give  to  the  West  Shore,  and  to  increase  his 
power  in  the  restoration  of  the  combination.  There 
was  also  a  tempting  occasion  for  the  most  approved 
methods  of  stock  inflation.  This  road  was  in  process 
of  construction  when,  in  July,  it  was  announced  that 
a  bargain  had  been  concluded  between  the  New  York 
Central  and  the  Pennsylvania  railroads,  by  which  the 
former  was  to  gain  possession  of  the  West  Shore  and 
the  latter  was  to  get  control  of  the  South  Pennsylvania 
in  its  unfinished  state,  and  to  use  its  pleasure  as  to 


The  Pooling  Policy.  203 

completing  the  work  or  leaving  it  to  ^o  to  ruin.  Ru- 
mors to  this  effect  had  been  heard  for  some  days.  Mr. 
Vanderbilt,  with  that  striking  frankness  which  some- 
times throws  a  world  of  light  on  the  railway  magnates' 
view  of  things,  had  declared  that  while  he  could  not 
say  that  such  a  bargain  Avas  completed,  he  regarded 
the  West  Shore  as  "  a  common,  miserable  thief,"  which 
"had  been  caught  with  its  hand  in  his  pocket,"  and 
he  declared  that  the  war  on  the  part  of  the  New  York 
Central  would  never  stop  until  it  gained  control  oi 
the  West  Shore.  This  assertion  of  the  railway's  prop- 
erty rights  in  the  transportation  business  of  the  cities 
along  its  line,  and  of  the  determination  to  choke  off 
any  criminal  who  attempts  the  felony  of  competition, 
was  not  repeated  in  words  by  the  less  talkative  mag- 
nates of  the  Pennsylvania  Railroad,  but  their  acts  had 
no  less  plainly  shown  that  they  were  determined  to 
ruin  all  their  rivals  unless  the  encroachments  upon 
their  territory  were  stopped.  By  the  latter  part  of 
July,  the  official  declaration  of  the  bargain  put  it  be- 
yond doubt.  The  New  York  Central  obtained,  through 
the  aid  of  the  Pennsylvania  Raih-oad  capitalists  and  a 
syndicate  of  New  York  brokers,  a  lease  of  the  West 
Shore  on  a  reorganized  capitalization  of  $60,000,000. 
The  Pennsylvania  Railroad  is  to  obtain  control  of  the 
South  Pennsylvania  and  the  Beech  Ci'eek,  another 
road  in  Avhich  Mr.  Vanderbilt  was  interested,  by  the 
issue  of  securities  to  the  amount  of  their  supposed 
cost,  bearing  interest  at  three  per  cent.  Each  corpora- 
tion is  thus  protected  in  the  exclusive  possession  of  its 
darling  local  traffic,  and,  it  has  since  been  rumored, 
the  great  combination  is  to  exercise  its  power  to  shut 
out  the  Baltimore  and  Ohio  from  New  York,  and  to 


204  The  Railways  and  the  BepuUic. 

rule  tbe  transportation  of  the  country  bet\Yeen  that 
city  and  the  Mississippi  River.  Apart  from  the  be- 
trayal by  Mr.  Vanderbilt  of  his  partners  in  the  South 
Pennsylvania  enterprise,  who  had  undertaken  in  good 
faith  to  build  a  new  Ihie  from  Pittsburgh  to  the  East, 
the  bar2:ain  receives  additional  sio;nificance  from  the 
fact  that  any  acquisition  by  a  railroad  of  a  rival  line  is 
forbidden  by  the  constitution  of  Pennsylvania  in  the 
most  sweeping  terms.  The  prohibition  covers  the  pur- 
-chase,  lease,  or  "  control  in  any  way  "  of  the  property 
or  franchises  of  "  any  rival  or  competing  line."  This 
provision  was  framed  for  the  express  purpose  of  pro- 
tecting competition.  It  left  no  possible  way  in  which 
the  Pennsylvania  Raih'oad  could  legally  gain  control  of 
the  South  Pennsylvania.  Yet  it  was  freely  announced 
that  it  would  take  possession,  and  would  furnish 
the  securities  by  which  the  bargain  was  to  be  consum- 
mated. It  was  an  open  secret  that  the  constitution 
was  to  be  evaded  by  the  agency  of  a  subordinate  cor- 
poration, a  transaction  which  was  characterized  by  one 
of  the  highest  legal  authorities  of  the  state  *  as  "  a 
clear  fraud  upon  the  constitution." 

An  injunction  suit,  brought  by  the  attorney-general 
of  the  state  to  prevent  the  consummation  of  the  trans- 
action, has  been  met  by  some  astonishing  arguments. 
The  president  of  the  Pennsylvania  Railroad  declared 
in  his  testimony  that  he  did  not  make  the  agreements 
as  president  of  that  corporation,  because  it  was  not  le- 
gal ;  but  he  did  it  as  president  of  a  minor  coi'poration, 
which  was  owned  and  controlled  by  the  Pennsylvania 
Railroad.  Yet  how  clearly  this  v\'as  a  mere  evasion  is 
shown  by  his  declaration  elsewhere,  that  he  would  not 

"'  Hon.  Daniel  Agnew,  ex-justice  of  tbe  Supreme  Court  of  Pennsylvania. 


The  Pooling  Policy.  205 

Lave  made  the  purchase  if  left  to  himself,  but  ^Yas 
constrained  to  do  so  by  the  Avishes  of  his  associates, 
and  of  the  directors  of  the  Pennsylvania  Railroad,  The 
South  Pennsylvania,  it  was  argued,  was  not  a  com- 
peting line,  because  it  was  not  yet  completed,  and,  as 
the  brilliant  president  of  the  New  York  Central  put  it, 
was  simply  "a  lot  of  holes  in  the  ground."  But  the 
investment  by  the  Pennsylvania  Railroad,  through  its 
agents,  of  $5,500,000  in  these  "  holes  in  the  ground," 
was  justified  and  declared  to  be  necessary,  because  the 
new  road,  if  completed,  would  be  "  a  disturbing  factor 
in  the  trunk-line  situation."  Under  such  pleas  as  this 
the  Pennsylvania  Railroad  hoped  to  buy  up  and  de- 
stroy competition,  notwithstanding  the  prohibition  of 
the  state  constitution. 

But  while  the  acquisition  of  the  South  Pennsylvania 
and  West  Shore  roads  illusti'ates  the  evils  of  stock- 
watering  and  construction-company  contracts,  and  the 
defiance  of  constitutional  law  by  the  railways,  it  is  es- 
pecially significant  in  the  light  which  it  throws  upon 
the  true  causes  and  purposes  of  the  conflict  which  it 
seems  to  have  ended.  If  there  were  any  doubt  left  by 
these  facts,  the  purpose  has  been  clearly  avowed  by 
the  representatives  of  the  trunk  lines  themselves.  Mr. 
Vanderbilt's  declaration  that  his  corporation  would 
never  cease  from  war  until  it  had  obtained  control  of 
the  West  Sliore  has  already  been  referred  to.  Since 
the  attorney-general  of  Pennsylvania  has  commenced 
injunction  proceedings  to  enforce  the  j^rovisions  of  the 
constitution,  it  has  been  openly  declared,  by  the  organs 
of  tlie  Pennsylvania  Railroad,  tliat  the  railway  war  was 
prolonged  by  this  opposition  to  the  consolidation,  and 
that  it  could  not  be  ended  until  the  Pennsylvania  road 


20G  The  Railways  and  the  BejmlUc. 

had  undisputed  control  of  the  independent  project.  By 
these  declarations  the  railway  authorities  put  the  re- 
cent Avar  in  its  true  light.  When  they  struck  at  each 
other's  revenue  by  reducing  rates  one  third  or  one  half 
at  a  single  blow,  they  were  not  competing;  they  were 
aiming  at  the  destruction  of  competition.  They  de- 
clared, by  their  acts,  that  they  would  keep  up  their 
policy  of  mutual  destruction  until  their  rivals  were 
driven  to  terms ;  and  the  real  purpose  of  the  late  con- 
test is  placed  beyond  all  doubt  by  the  great  bargain 
in  which  competition  was  strangled.  The  railway 
kings  waged  the  late  war,  disturbed  business  by  vio- 
lent fluctuations  of  rates,  tumbled  the  investment  mar- 
ket into  chaos,  wasted  the  revenues  of  their  coi'pora- 
tions,  and  finally  added  $74,000,000  to  the  totals  of 
their  stock  and  debt,  for  the  clear  purpose  of  driving 
the  roads  which  competed  for  their  local  traflSc  into 
consolidation,  and  of  forcing  the  outside  corporations, 
which  they  could  not  absorb,  into  combination  with 
themselves. 

The  success  of  the  pooling  policy  in  maintaining 
rates  and  suspending  competition  has  been  far  from 
complete.  In  the  first  few  years  of  its  operation  it 
Avas  able  to  advance  the  rate  from  Chicago  to  the  East 
to  the  high  figure  of  45  cents  per  hundred  pounds, 
and  to  keep  it  at  30  to  35  cents  for  a  considerable 
period.  But  the  wars  of  1 879, 1880,  and  1881  brought 
rates  down  again,  and,  for  most  of  the  time  since,  their 
efforts  to  maintain  them  above  the  25-ceut  basis  have 
been  futile.  Within  the  last  two  years  the  attempt 
to  maintain  rates  by  the  power  of  the  pools  has  been 
an  almost  entire  failure,  and  it  is  yet  an  open  question 
whether  the  effort  to  restore  them  will  be  successful. 


The  Pooling  Policy.  207 

The  degree  of  success  or  failure  -vvbich  has  attended 
the  various  pools  lias  depended  partly  upon  the  char- 
acter of  the  devices  resorted  to,  but  still  more  upon 
the  external  conditions  surrounding  the  traffic  pooled. 
The  mere  agreements  to  sustain  rates  made  by  the 
trunk-line  presidents,  during  the  years  from  1875  to 
1877,  wlien  there  was  not  enough  business  to  keep 
all  their  lines  employed,  hardly  yielded  results  worth 
the  trouble  of  making  the  compacts.  The  first  institu- 
tion of  the  policy  of  pooling  and  dividing  the  traffic, 
under  Mr.  Fink,  was  less  stringent  than  any  subsequent 
pool,  as  regards  its  provisions  for  sustaining  rates  and 
its  power  to  enforce  discipline ;  yet  it  was  more  suc- 
cessful in  keeping  np  rates  for  a  period  of  years  than 
any  of  the  improved  and  strengthened  compacts  in  suc- 
ceeding years.  This  can  be  explained  on  no  other  hy- 
pothesis than  its  good-fortune  in  that,  shortly  after  its 
organization,  a  period  followed  'when  the  large  expor- 
tations  of  agricultural  products  and  the  general  revival 
of  prosperity  furnished  to  all  the  trunk  lines  a  volume 
of  business  which  took  away  the  inducement  for  cut- 
ting rates.  The  first  pool  bridged  over  the  short  pe- 
riod from  1877  to  the  revival  which  began  to  make 
itself  apparent  in  1878.  In  subsequent  years,  when 
expansion  of  the  breadstufts  movement  had  ceased, 
while,  on  tlie  other  hand,  tlie  factitious  prosperity  of 
the  trunk  lines  under  its  workino^s  had  broui>]it  ne^v 
competitors  into  the  field,  and  compelled  the  further 
division  of  the  traffic,  the  j^ower  of  the  iX)ol  began  to 
wane.  New  devices  to  strengthen  it  were  constantly 
adopted:  arbitrators  were  appointed  to  I'evise  its 
awards  of  percentages,  advisory  commissions  to  settle 
its  principles,  power  was  granted   to  cut  rates  as  a 


208  The  Railways  and  the  liejmUic. 

means  of  punishing  surreptitious  reductions,  and,  finally, 
the  money  pool  was  tried.  When  this  last  and  most 
stringent  plan  was  adopted,  it  was  heralded  as  a  pro- 
vision which  would  forever  abolish  the  deplorable 
vice  of  cutting  rates.  Yet  its  failure  permanently 
to  uphold  rates  was  made  manifest  in  the  autumn  of 
1884  and  the  opening  of  1885,  when,  as  was  stated  by 
Mr.  Fink  in  one  of  his  reports,  the  money  balances 
^vere  regularly  adjusted,  but  the  rate-cutting  went  on. 
In  the  absence  of  traffic  to  keep  all  the  lines  employed, 
even  this  extraordinary  provision  for  strengthening  the 
pool  and  mulcting  offenders  against  it  proved  unsuc- 
cessful. At  the  close  of  the  period  we  have  reviewed 
the  largest  railway  .owner  in  the  country  was  quoted 
as  declaring  that  pooling,  in  the  case  of  general  rail- 
way traffic,  is  only  successful  when  business  is  good, 
and  cannot  avert  low  rates  when  business  is  poor. 
Mr.  Fink  has  recognized  the  logic  of  events  by  declar- 
ing that,  for  the  full  maintenance  of  rates,  the  pooling 
combinations  must  have  legal  recognition  and  author- 
ity to  enforce  their  contracts  on  the  roads.  This  is, 
however,  but  one  side  of  the  picture.  It  must  be  ac- 
knowledged that  the  pooling  devices  have  succeeded 
in  bridging  over  sevei'al  periods  of  threatening  adver- 
sity, and  that,  on  the  whole,  they  have  for  considerable 
periods  suspended  competition  and  secured  to  the  rail- 
ways artificially  high  rates.  This  qualified  success 
has  been  largely  dependent  on  the  absence  of  the  in- 
ducements to  rivalry;  and  when  the  strength  of  the 
pool  has  been  tested  by  a  long  period  of  light  ship- 
ments and  business  depression,  its  most  stringent  form 
has  proved  a  failure. 

On  the  other  hand,  it  appears  that  one  class  of  com- 


The  Pooling  Policy.  209 

binations  lias  been  totally  exempt  from  the  weakness 
of  pools  in  general  traffic.  The  three  prominent  cases 
Lave  been  :  the  combination  of  the  trunk  lines  in  the 
petroleum  traffic,  the  anthracite-coal  combination,  and 
the  live-stock  j^ool  as  it  was  maintained  prior  to  1880. 
Each  of  these  combinations  has  been  remarkable  alike 
for  its  stability,  in  contrast  with  the  pools  in  general 
business,  and  for  its  disregard  of  public  interests  and 
public  rights.  It  will  be  observed  that  in  each  of 
them  the  cohesive  power  appears  to  have  lain  in  the 
private  interests  which  controlled  the  action  of  the  of- 
ficials of  the  roads.  In  two  of  these  cases  a  shipping 
firm,  in  consideration  of  special  rates  or  drawbacks,  un- 
dertook to  divide  the  traffic  in  fixed  proportions,  by 
giving  such  of  the  roads  as  fell  behind  their  share  dur- 
ing one  period  enough  of  its  freight  shipments  dur- 
ing the  period  succeeding  to  make  up  for  the  short- 
age. The  live-stock  pool,  which  granted  a  rebate  of 
$16  per  car  to  a  prominent  Chicago  live-stock  firm 
for  performing  this  service,  was  the  shortest  of  these 
combinations  in  duration  ;  but  its  operation  for  more 
than  two  years  was  sufficient  to  illustrate  the  work- 
ings of  the  method.  It  is  to  the  credit  of  the  trunk- 
line  pool  that  this  discrimination  was  fiuall}'  abolished, 
on  a  plan  presented  by  Mr.  Fink  in  1879.  The  rela- 
tions of  the  Standard  Oil  Company  with  the  trunk 
lines  have  always  borne  the  character  of  a  combina- 
tion. In  the  early  days  of  its  career  it  may  have  been 
simply  the  beneficiary  of  an  agreement  between  the 
railways.  It  enjoyed  a  contract  for  special  rates,  and  for 
the  division  of  traffic  between  the  two  New  York  roads, 
from  October,  1874;  but  its  power  in  connection  with 
the  Pennsylvania  liailroad  was  not  so  fully  defined  un- 

14 


210  The  Railways  and  the  Bepublic. 

til  1877  or  1878.  The  termination  of  the  contest  be- 
tween the  Pennsylvania  Raih'oacl  and  the  Standard,  in 
1877,  completed  the  grasp  of  the  hitter  corporation  on 
the  petroleum  business.  At  the  same  time  the  trunk- 
line  pool  was  formed,  a  fact  which  is  suggestive  as  to 
the  influences  that  led  the  railway  company  to  end  its 
conflict  with  the  Standard.  The  trunk-line  negotia- 
tions were  used  to  bring  the  Pennsylvania  Eailroad  to 
the  full  support  of  the  Standard's  monopoly,  and  one 
of  the  most  important  and  enduring  results  of  the 
j^ooling  agreements  of  1877  was  the  establishment  of 
the  petroleum  pool,  in  wdiich  the  Standard  occupied 
the  position  of  evener  as  well  as  beneficiary,  and  held 
the  j^ower  to  discipline  any  road  that  might  break 
away  from  the  combination.  Whatever  indefiniteness 
there  may  have  been  in  the  pooling  arrangements  pre- 
vious to  that  time,  there  is  no  doubt  as  to  the  agree- 
ments referred  to  in  the  account  of  that  organization, 
by  w^hich  the  Standard  agreed  to  maintain  the  percen- 
tages assigned  to  each  railroad,  and  the  railroads  agreed 
to  protect  the  Standard  against  competition.  This  cli- 
max and  triumph  of  the  pooling  policy  beggars  criti- 
cism. The  combination  which  sustains  rates  by  ren- 
dering it  impossible  for  any  shipper  to  exist,  save  the 
power  which  makes  the  division  among  the  various 
roads,  may  well  be  regarded  as  "a  successful  plan  for  pre- 
venting railway  wars  and  securing  uniformity  of  rates." 
However  its  success  may  be  questioned  in  other  ar- 
rangements, there  is  no  doubt  that  tlie  pooling  plan, 
of  wdiich  the  Standard  is  the  cohesive  power,  has,  since 
its  final  triumph,  been  wholly  successful  in  abolishing 
railway  wars  between  the  lines  which  made  themselves 
its  servants,  and  securing  such  "a  uniformity  of  rates" 
as  shuts  out  all  other  shippers  of  petroleum. 


The  Pooling  Policy.  211 

The  anthracite -coal  combination  exhibits  the  suc- 
cessful working  of  the  pooling  policy  under  somewhat 
different  circumstances ;  but  it  is  a  no  less  significant 
instance  of  the  suspension  of  competition.  The  appli- 
cation of  that  policy  to  the  anthracite  coal  traffic  was 
probably  the  first  form  of  pooling  practised.  The  ex- 
act character  of  the  early  anthracite  pools  is  not  pub- 
licly known  ;  but  as  early  as  1871,  an  investigation- was 
ordered  by  the  Legislature  of  Pennsylvania  into  the 
character  and  effect  of  an  alle2;ed  combination  between 
the  anthracite  roads.  During  this  investigation  repre- 
sentatives of  the  railways  testified  that  there  was 
no  compact  or  agreement  between  the  roads  for  limit- 
ing production  or  enhancing  the  price  of  coal.  It  was 
afterwards  asserted  that  this  testimony  had  been  made 
possible  by  abrogating  the  agreement  before  the  inves- 
tigation, but  that,Avhile  the  written  compact  had  been  de- 
stro3^ed,  the  understanding  continued  in  force  as  before. 
Whatever  may  have  been  the  case  before  1871,  it  is  cer- 
tain that,  ever  since  that  time,  the  anthracite-coal  traffic 
has  been  controlled  by  a  combination  of  railways,  as  open 
and  undisguised  as  the  trunk-line  pool,  but  fiir  surpass- 
ing the  wildest  ambition  of  that  organization  in  its 
control  of  private  business,  its  restriction  of  production, 
and  its  successful  measures  for  increasing  prices  to 
consumers.  In  this  case  the  evils  of  combination 
have  been  increased  by  the  direct  interest  of  the  com- 
panies in  the  business  which  furnishes  their  chief  traf- 
fic. The  legislative  investigation  referred  to  showed 
that  excessive  and  outraojeous  discriminations  a^rainst 
shippers  had  been  made  by  tlie  coal  roads.  After 
a  thirty  days'  strike  the  private  mine -owners  had 
consented   to    the   wages    demanded   by   the   miners, 


212  The  Bailways  and  the  Republic. 

and  would  Lave  supplied  a  large  trade;  but  the  rail- 
ways, which  were  also  miners  as  well  as  carriers,  and 
were  determined  not  to  yield  to  their  men,  raised  the 
freight  rates  of  the  private  firms  to  three  times 
their  former  standard.  By  this  means  the  price  of 
coal  was  brought  up  to  $12  a  ton,  and  the  private 
operators,  their  workmen,  and  the  consumers  of  coal 
were  made  to  feel  the  power  of  the  great  railway 
and  mining  companies.  It  is  not  necessary  to  fol- 
low out  in  detail  the  steps  by  which  the  railways 
established  their  absolute  power  in  all  branches  of 
the  coal  trade.  Enough  that  the  result  is  that  of 
270,000  acres  of  anthracite  coal  lands  in  Pennsylva- 
nia 195,000  are  now  owned  by  six  railways.  One  ef- 
fect of  uniting,  in  the  same  corporations,  the  business 
of  shippers  and  that  of  carriers  is  the  enormous  in- 
flation of  their  capital.  Their  aggregate  capitaliza- 
tion amounts  to  $500,000,000,  while  the  actual  cost 
of  the  roads  and  equipment  for  transportation  is 
$114,000,000. 

For  the  purpose  of  securing  a  profit  on  this  stupen- 
dous amount  of  inflated  capital,  the  policy  of  combina- 
tion has  been  carried  to  an  unequalled  extent.  Not 
only  was  competition  in  transportation  suspended,  by 
a  division  of  traflic  between  the  railways,  but  the  com- 
petition of  the  mines  was  stopped,  as  far  as  possible,  by 
agreements  which  limited  the  output  of  anthracite  coal 
to  an  arbitrary  total  fixed  by  the  combination.'''  These 
agreements  are  enforced  by  ordering  the  suspension  of 
mining  at  such  time  as  the  railway  combination  deter- 
mines; sometimes  for  one  quarter  of  the  working  time 
in  a  year.  We  have  seen  that  the  combination  con- 
*  30,000,000  tons  annually  during  the  past  two  years. 


The  Pooling  Policy.  213 

teDcls  as  vigorously  to  prevent  an  advance  of  miners' 
wages  as  to  maintain  tbe  price  of  coal;  and  hence  the 
artificial  advance  of  price  brings  no  corresponding  in- 
crease of  pay  to  the  labor  employed.  In  fact,  statistics 
show  that  the  average  wages  paid  to  the  men  engaged 
in  this  severe  and  arduous  work  ranges  from  $350  to 
$400  per  year.  The  restrictive  powers  of  the  combina- 
tion are  extended  over  the  distribution  of  the  product. 
No  wholesale  dealer  can  engage  in  the  anthracite  coal 
business  without  the  consent  of  one  or  the  other  of  the 
lines  forming  the  combination,  or  without  conforming 
to  the  fixed  and  arbitrary  wholesale  prices  prescribed 
by  the  companies.  Some  of  the  eccentricities  of  the  ar- 
tificial means  used  to  sustain  prices  have  been  exposed 
in  a  previous  chapter.  The  burden  of  the  control,  es- 
tablished over  both  producers  and  consumers,  by  the 
anthracite  and  bituminous  coal  combinations,  has  been 
estimated  at  8-^1,000,000  annually.  AVhatever  may  be 
thought  of  the  accuracy  of  this  calculation,  there  is  no 
doubt  that  the  combination  controlling  the  coal  trade 
of  Pennsylvania  has,  by  restrictions  upon  that  industry 
and  artificial  prices  for  its  products,  inflicted  a  vast  and 
wholly  unjustifiable  bui'den  upon  the  producers  and 
the  public. 

These  three  most  successful  examples  of  the  combi- 
nation policy  show  that  the  most  powerful  and  perma- 
nent pools  in  railway  traffic  are  those  which  are  asso- 
ciated with  vital  discriminations.  It  may  be  ques- 
tioned whether  the  discriminations  give  strength  and 
permanence  to  the  pool,  or  whether  they  can  be  main- 
tained only  l)y  a  pool  wliich  is  strong  in  itself.  The 
anthracite  pool  is  solid  and  enduring,  as  much  because 
the  companies  are  miners  and  shippers  of  coal,  and  wish 


214  The  Railways  and  the  Repuhlic. 

to  obtain  artificially  higli  prices  for  their  product,  as 
because  they  are  carriers  and  wisli  to  obtain  Ligli  rates 
of  freight.  But,  in  the  other  pools  involving  a  favored 
interest,  it  is  an  interesting  question  whether  the  cohe- 
sion is  furnished  by  the  presence  of  a  large  shipper, 
able,  by  controlling  the  traflSc,  to  maintain  a  division 
of  the  business  between  the  roads,  and  to  punish  re- 
bellion by  diverting  shipments,  or  by  the  superior  zeal 
of  the  railway  managers,  who  care  more  to  benefit  a 
business  in  which  they  are  individually  interested, 
than  one  in  which  only  the  profits  of  the  railways  are 
involved.  The  latter  theory  receives  some  corrobora- 
tion from  the  fact  that  it  does  not  seem  to  make  much 
difference,  in  cases  of  this  sort,  what  the  devices  of  the 
pool  may  be  for  its  preservation.  It  may  be  a  simple 
and  perhaps  tacit  compact,  as  in  the  early  stages  of  the 
combination  wdiich  fostered  the  Standard  Oil  monop- 
oly ;  or  a  division  of  the  traffic,  as  in  the  later  stages  of 
the  same  pool,  and  in  the  case  of  the  "  eveners'  pool" 
in  the  live-stock  trade ;  or  a  division  of  territory,  as  in 
the  case  of  the  bituminous-coal  companies;  or  a  com- 
bination of  all  these  features,  with  restriction  of  pro- 
duction and  arbitrary  prices  for  the  product,  as  in  the 
case  of  the  anthracite  -  coal  pool.  The  presence  of  a 
shipping  interest,  with  special  favors  or  exclusive 
control,  has  always  produced  the  greatest  degree  of  co- 
hesion and  success  in  the  pooling  combination.  The 
fact  is  significant  that  the  most  successful  pools  have 
been  those  which  have  built  up  monopolies. 

Another  point  of  weight  in  estimating  the  ability  of 
pools  to  suspend  competition  is  that  these  devices  have 
proved  successful  in  inverse  ratio  to  the  number  of  dif- 
ferent lines  combined.     Where  there  have  been  but 


The  Pooling  Policy.  215 

two  roads  engaged  in  the  traffic,  as  in  the  bituminous- 
coal  agreements,  or  three,  as  in  the  Connellsville-coke 
pool,  and  in  the  first  stage  of  the  petroleum  combination, 
the  primitive  form  of  a  simple  agreement  to  sustain 
rates  has  frequently  proved  successful.  When,  in  the 
last-named  case,  the  number  of  roads  concerned  in- 
creased to  four,  a  more  stringent  combination  was  re- 
quired, and  was  made.  When  there  were  but  four  lines 
engaged  in  the  trunk-line  traffic,  Mr.  Fink's  first  pooling 
arrangements  proved  sufficient  to  maintain  rates  for  a 
term  of  years ;  but,  during  the  last  twenty  months,  with 
seven  separate  corporations  to  share  the  trafiic,  all 
the  additional  safeguards  and  precautions  which  seven 
years  of  experience  have  suggested  to  his  inventive 
mind  have  proved  inadequate  to  hold  them  together. 
The  same  is  true  of  all  pooling  combinations.  If  a 
hundred  diS'erent  railways  were  competing  for  the  same 
traffic,  it  would  evidently  be  impossible  to  obtain  unani- 
mous consent  to  the  establishment  of  a  pooling  combina- 
tion. Perhaps  a  dozen  or  a  score  of  competing  compa- 
nies might  be  brought  to  form  such  a  compact ;  but  to 
make  them  all  adhere  to  it  would  be  utterly  impossi- 
ble. In  short,  it  is  a  general  principle,  which  limits  all  at- 
tempts at  pooling  traffic,  that  competition  can  be  suspend- 
ed only  where  the  number  of  competitors  is  limited. 

The  leading  claim  in  support  of  the  pooling  policy 
is  that  it  aims  at  uniformity  of  rates.  Such  uni- 
formity is,  no  doubt,  highly  desirable  for  the  public  as 
well  as  the  corporations.  Railway  reformers  demand 
uniform  rates  upon  an  equitable  standard.  But,  to 
judge  whether  this  end  can  be  attained  by  the  rail- 
way combinations,  it  is  necessary  to  considei*,  first,  what 
the  result  will  be  if  the  objects  of  the  pools  can  be  per- 


216  The  Railways  and  the  Rejpvhlic. 

fectly  attained  ;  and,  second,  what  result  is  actually  at- 
tained by  pooling  as  practised.  If  the  pooling  man- 
agers should  perfect  their  ideal,  it  may  be  doubted 
whether  a  uniform  and  permanent  tariff,  such  as  W'Ould 
be  established  by  men  wdiose  sole  purpose  is  to  get 
the  utmost  possible  revenue  out  of  the  traffic,  would 
be  a  public  benefit.  However  favorable  to  commerce 
the  uniform  adherence  to  fair  and  moderately  profita- 
ble freight  rates  may  be,  there  vrould  be  no  public  ben- 
efit in  the  permanence  of  rates  at  twice  that  standard. 
For  instance,  the  permanence  of  the  grain  rate  from 
Chicago  to  the  seaboard  at  45  cents,  after  the  com- 
petition of  the  railways  had  reduced  the  rate  below 
20  cents,  the  lower  rate  at  least  yielding  some  profit, 
has  little  to  recommend  it  in  the  intei'ests  of  gen- 
eral commerce.  If  the  pool  would  maintain  equita- 
ble rates  its  success  might  be  desired  ;  but  what  guar- 
antee is  there  that  the  complete  establishment  of  its 
power  would  make  such  rates?  Its  very  character, the 
functions  of  the  men  who  control  its  policy,  and  its 
avowed  object  of  swelling  the  earnings  of  railways  by 
artificial  methods,  forbid  such  an  expectation.  Make 
the  success  of  the  pool  absolute,  so  that  it  can  work 
w^ithout  fear  of  competition,  and  its  rates  will  be  uui- 
form;  but  of  such  a  character  that  their  uniformity  w^ill 
be  a  public  grievance  and  burden. 

The  apostles  of  the  pooling  theory  have  earnestly  in- 
sisted, of  late,  that  the  object  of  pooling  is  not  to  ad- 
vance rates.  Thus,  a  pamphlet  by  Mr.  G.  A.  Blanchard 
alleges  that  "traffic  unity  has  reduced  rates  and  in- 
creased tonnage;"  adding  rather  disingenuous  tables  of 
the  rates  in  force  at  the  establishment  of  the  pool  in 
1877,  and   at  the   date   of  the  pamphlet.     The  same 


The  Pooling  Policy.  217 

claim  was  made  in  general  terms  by  the  United  States 
Bureau  of  Statistics,  in  a  report  which  advocates  the 
pooling  doctrines.  It  says :  "  The  volume  of  traffic  has 
also  enormously  increased  and  rates  have  constantly 
fallen."  These  statements  are  only  partly  true,  and 
suggest  an  inference  which  is  wholly  incorrect.  Rates 
have  not  constantly  fallen  during  the  existence  of  the 
pools.  For  the  first  few  years  of  these  combinations 
rates  were  advanced  and  kept  up.  The  original  trunk- 
line  pool,  whose  success  led  to  the  adoption  of  the  same 
policy  by  all  the  railways  of  the  country,  advanced  rates 
as  fast  as  its  ability  to  do  so  was  demonstrated,  from 
the  15-cent  basis  at  Chicao-o — which  had  ruled  durino; 
the  preceding  period  of  severe  competition — to  a  basis 
of  30  and  35  cents,  and  finally  of  40  and  45  cents.  It 
is  certain  that  further  advances  were  only  prevented 
by  the  knowledge  that  the  traffic  would  wait  for  the 
opening  of  the  water-routes,  and  thus  avoid  the  imposi- 
tion of  double  rates  by  the  railways.  Since  the  estab- 
lishment of  these  high  rates  in  1877  and  1878,  rates 
have  taken  a  downward  course;  but  this  was  in  spite 
of  the  pools,  and  not  as  a  consequence  of  their  opera- 
tions. Every  reduction  in  rates  has  been  in  conse- 
quence of  a  revolt  of  one  railway  or  another  from  the 
rule  of  the  combination  ;  every  restoration  of  the  pools 
has  been  accompanied  by  an  advance  of  rates.  A  re- 
sult which  it  is  the  main  pui-pose  of  these  combina- 
tions to  prevent  cannot  be  made  an  argument  in  their 
favor.  Ilailroad  federation  may  not  yet  have  l)een  able 
wholly  to  suspend  the  operation  of  competition ;  Ijut 
its  failure  is  due  ratlier  to  its  lack  of  power  than  to 
its  lack  of  desire.  A  thief  may  be  cauglit  and  lodged 
in  the  penitentiary;    but  this   demonstration   of  the 


218       '  The  Railways  and  the  Eejpublic. 

power  of  either  statute  or  economic  law  is  no  argument 
in  favor  of  the  practice  which  called  it  forth. 

In  contrast  with  the  ideal  of  the  railway  managers 
stand  the  actual  effects  of  the  pool  upon  uniformity  of 
rates.  It  is  natural  that  reactions  from  attempts  to 
sustain  rates  by  arbitrary  means  should  produce  great 
variations  and  sudden  changes.  Every  year  of  the  pe- 
riod since  pooling  became  general,  and  almost  every 
month  in  the  last  two  years,  furnish  illustrations  of 
this  fact.  Thus,  in  1879,  the  East-bound  rates  from 
Chicago  were  reduced,  in  a  few  months,  from  45  to  15 
cents,  and  then  raised  again  to  40.  Thus,  in  nearly 
every  month  of  the  last  fifteen,  there  have  been  one  or 
more  chano;es  in  the  rates  on  leadinoj  classes  of  trunk- 
line  freights,  varying  from  the  usual  change  of  20 
per  cent,  at  a  time,  on  grain  freights,  to  the  unprece- 
dented reduction  of  92  per  cent,  on  emigrant  rates 
made  by  the  Pennsylvania  Railroad  in  January,  1885. 
All  these  variations  of  rates  were  the  result  of  efforts  ei- 
ther on  the  part  of  some  road  to  obtain  better  conditions 
for  itself  in  the  combination,  or,  on  the  part  of  the  com- 
bination, to  drive  refractory  roads  to  submission,  by  de- 
stroying their  revenue.  The  more  extreme  and  vio- 
lent the  changes,  the  more  clearly  were  they  the  result 
of  the  pool  influences.  When  ^ve  remember  that  be- 
fore the  combinations  beG:an  these  violent  and  unex- 
pected  changes  in  rates  were  almost  unknown,  it  will 
be  seen  that  the  actual  operation  of  the  pooling  pol- 
icy has  been,  not  to  establish  uniform  and  equitable 
rates,  but  to  produce  irregular  periods  of  high  rates  va- 
ried by  seasons  of  extreme  changes,  ^vhich  have  wrought 
great  injury  to  commerce. 

Another  claim  of  no  less  importance,  though  per- 


The  Pooling  Policy.  219 

haps  less  prominent,  is  that  pools  prevent  discrimina- 
tions. This  is  what  neither  law  nor  public  opin- 
ion has  yet  been  able  to  do,  and  it  would  be  a  great 
achievement  for  the  combinations.  Perhaps  a  sufficient 
answer  would  be  simply  that  they  have  not  done  so. 
If  seven  or  eight  years  of  pooling  have  effected  no  ap- 
preciable improvement,  how  long  are  we  to  wait  before 
the  reformatory  influences  begin  to  work  ?  But  the 
failure  may  be  due  to  human  imperfections,  which 
would  be  abolished  if  the  pooling  combinations  are 
perfected.  Let  us  then  consider  what  tendency  to  pre- 
vent discriminations  there  is  in  devices  to  suspend 
competition.  The  claim,  as  hinted  by  Mr.  Fink,  and 
stated  more  directly  by  other  advocates  of  the  policy, 
is  that  it  prevents  discriminations,  (1)  by  removing  the 
fluctuations  of  rates  under  competition,  which  will  give 
one  man  a  cheaper  rate  in  the  morning  than  another 
will  get  in  the  evening ;  and  (2)  by  taking  away  the 
forces  which  give  a  competitive  point  cheaper  rates 
than  a  non-competitive  one.  It  is  true,  as  shown  in 
preceding  chapters,  that  many  discriminations  arise 
from  the  inequalities  of  competition ;  but  the  remedy 
of  entirely  destrojdng  competition  is  too  much  in  the 
style  of  that  mediaeval  school  of  treatment,  which  cured 
a  severe  cold  by  throwing  the  patient  into  a  much 
more  dangerous  fever.  At  any  single  point  of  ship- 
ment, the  inequalities  of  rates  under  general  competi- 
tion are  never  very  serious.  There  is  more  truth  in 
the  claim,  that  the  success  of  the  pool  in  sustaining 
rates,  at  competitive  points,  would  diminish  the  ten- 
dency to  discriminate  against  freight  from  other  points. 
But  the  actual  workings  of  the  pools  reduce  the  value 
of  this  result  nearly  to  zero.     The  different  lines  are 


220  The  Railways  and  the  Bejpublic. 

left  entirely  to  tbeir  own  will  as  regards  tlie  local 
rates.  No  matter  how  well  through  rates  may  be  sus- 
tained, any  line  may  impose  ten  times  the  proportion- 
ate rate  on  its  local  traffic,  so  far  as  pool  regulations 
are  concerned.  Any  railway  can  indulge  in  as  wild 
vagaries  of  discriminations  and  inequitable  tariffs  as  it 
pleases  on  its  local  traffic,  and  the  pooling  authorities 
Avill  never  offer  a  protest.  All  the  numberless  forms 
of  discrimination  between  places,  persons,  and  classes 
of  freight,  which  grow  out  of  the  absolute  control  by 
a  railway  of  its  local  traffic,  are  left  unchecked  by  the 
pool ;  and  the  value  of  this  alleged  preventive  of  dis- 
crimination is  shown  by  the  fact  that,  after  seven  years 
of  pooling,  not  a  single  case  is  on  record  in  which  the 
pool  has  checked  any  display  of  partiality,  however 
flagrant,  by  one  of  its  members  in  its  own  local  traffic. 
If  a  number  of  competing  raihvays  should  combine, 
with  the  sincere  intention  of  abolishing  all  favoritism 
in  rates,  they  might  be  aljle  to  accomplish  much  good. 
But  if  they  combine  for  the  purpose  of  upholding  such 
favoritism,  the  evil  is  doubly  intrenched  behind  the 
authority  of  the  pool.  The  fact  is  that  no  pool  ever 
was  organized  for  the  purpose  of  abolishing  discrimina- 
tions, while  some  of  the  most  prominent  and  success- 
ful pools  have  existed  apparently  for  the  purpose  of 
upholding  such  discriminations.  It  is  possible  to  im- 
agine a  combination,  under  the  control  of  a  man  like 
Mr.  Fink,  who  uses  all  his  power  to  establish  practical 
equality  in  rates  on  the  majority  of  the  traffic  which  he 
controls.  It  is  no  less  possible  to  imagine  that  even 
such  a  pooling  authority  may  be  forced  by  the  interests 
of  the  railways,  in  a  particular  branch  of  traffic,  into  an 
unreasonable    discrimination ;    as  when  the   economy 


The  Pooling  Policy.  221 

made  by  doing  away  with  the  transportation  of  use- 
less weight,  by  shipping  dressed  meat  instead  of  live- 
stock, is  annulled  by  putting  the  freight  rates  70  per 
cent,  higher  than  on  the  old  method  of  transportation, 
which  some  of  the  railways  are  interested  in  preserv- 
ing.* Further,  the  facts  force  us  to  take  into  considera- 
tion combinations  which  no  imagination  could  easily 
originate,  in  which  the  influence  of  the  railways  upon 
each  other  aud  the  commercial  public  is  consolidated, 
for  the  express  purpose  of  maintaining  and  perpetuat- 
ing most  unjust  discriminations.  When  Mr.  Fink  is 
able  to  erase  from  commercial  history  such  gigantic 
facts  as  the  Standard  Oil  Company,  the  anthracite  pool, 
and  the  live-stock  discriminations,  his  claim  that  pool- 
ing prevents  discrimination  may  have  some  Aveight, 
but  not  until  then. 

In  practice  the  pool  simply  strengthens  the  arbitrary 
and  unrestrained  power  of  railway  officials  over  part 
of  their  traffic,  and  thus  facilitates  all  vital  and  injuri- 
ous forms  of  discrimination.  While  the  imeven  action 
of  competition  may  produce  inequalities  of  rates,  the 
cause  of  discriminations  between  localities  is  that  the 
railways  are  free  from  competition  at  local  points.  It 
is  their  exemption  from  competition,  too,  which  enables 
them  to  establish  arbitrary  and  unjust  differences  be- 


*  Before  the  Hepburn  Committee  Mr.  Fink  correctly  said,  "  The  proper 
basis  of  railroad  tariffs  is  the  cost  of  transportation."  Witli  regard  to 
the  live-stock  and  drcsscd-beof  rates,  he  stated  tlie  principle  on  which 
the  matter  was  settled  to  be  tliat  of  putting  "the  dressed-beef  and  live- 
stock shippers  on  the  same  footing,  as  regards  the  cost  of  transportation 
(which  in  this  instance  means  freight  charges)  of  the  product  of  the 
animal  to  Eastern  markets."  In  other  words,  the  economy  of  the  dressed- 
beef  shipments  was  to  be  destroyed,  for  the  l^encfitof  the  live-stock  inter- 
ests of  the  New  York  Central  and  Pennsylvania  Kailroad  managers. 


222  The  Railways  and  the  Hejpuhlic. 

tween  shippers  in  tlie  traffic  over  whicli  they  Lave 
absolute  coDtrol.  This  absolutism  is  extended  and 
strengthened  by  the  pool.  Evils  which  were  uj)held 
by  a  single  corporation  are  supported  by  the  united 
force  of  half  a  dozen,  and  the  favoritism  that  was  be- 
fore confined  to  the  local  traffic  of  the  lines  may  be 
extended  and  enforced  at  competing  points.  Even 
admitting  that  the  pool  will  abolish  the  discriminations 
complained  of,  it  wdll  also  abolish  the  freedom  of  trade 
movements  and  the  oj)eration  of  natural  laws  of  com- 
merce, in  whose  defence  alone  the  practice  of  discrimina- 
tion is  resisted.  The  railway  pool,  as  a  remedy  for  dis- 
crimination, is  a  leap,  from  the  frying-pan  of  inequitable 
and  partial  exactions  by  the  railway  powei",  to  the  triple- 
heated  furnace  of  absolute  and  arbitrary  rule,  imposed 
by  the  combination  of  all  roads  and  the  more  or  less 
complete  abolition  of  competition. 

It  is  not  meant  that  pools  do  nothing  but  work  for 
the  suspension  of  direct  competition ;  but  it  is  clear 
that  the  suggestion  of  anything  else  as  their  principal 
purpose  is  misleading  and  uncandid.  A  passage  of 
Mr.  Fink's  testimony  before  the  Senate  Committee,  in 
1883,  is  a  striking  instance  of  this.*    The  Commissioner 

*  In  Mr.  Fink's  testimony  before  the  Senate  Committee  on  Education 
and  Labor,  after  stating  that  the  principal  object  of  his  organization  was 
"  the  establishment  and  maintenance  of  uniform  tariffs,"  he  said :  "  It 
would  not  do  for  many  companies  to  operate  each  road  separately  from 
the  others.  They  have  to  arrange  with  each  other  to  form  connections, 
to  establish  through  lines  of  transportation,  and  tariffs  for  such  through 
lines.  It  is  a  very  complicated  question  to  make  tlicse  tariii's  uniform  on 
many  competing  lines,  and  to  arrange  them  so  that  they  bear  equally 
upon  different  localities,  and  to  avoid  unjust  discrimination,  and  it  is  still 
more  difficult  to  see  that  the  tariffs  properly  established  over  so  many 
roads  are  maintained  alike  to  all  shippers  receiving  a  like  service.  To 
accomplish    this   is    tlie    object   of  the   bureau,  v,-hicU  is   established 


The  Pooling  Policij.  223 

of  the  trunk-line  pool  lias  at  other  times  alleged  the 
facilitation  of  tbroiigli  shipments,  forming  connections, 
establishing  through  lines  of  shipment,  and  tariffs  for 
such  lines,  to  be  an  important  work  performed  by  the 
pool.'"*  It  is  not  to  be  denied  that  the  establishment 
of  facilities  by  which  goods  can  be  shipped,  on  a  single 
bill  of  lading,  from  New  York  to  Omaha,  is  highly  im- 
portant ;  and  it  is  also  true  that  in  some  measure  this 
work  is  perfoi'med  by  the  pooling  arrangements.  But 
it  is  only  incidental  to  the  main  object  of  those  arrange- 
ments, and  is  by  no  means  their  principal  function. 
How  essential  this  distinction  is,  may  be  seen  from  the 
character  of  the  pools.  If  the  improvement  of  facilities 
for  through  shipments  were  the  object,  the  pools  would 
be  made  up  of  connecting  and  not  competing  lines. 
The  fact  that  such  combinations  are  always  made  by 
the  competing  lines,  already  established  between  lead- 
ing points,  and  that  the  lines  connecting  with  them 
beyond  those  points  are  left  to  the  care  of  other  pools, 
shows  that  the  facilitation  of  through  shipments  does 
not  weigh  a  scruple  in  the  scale  against  the  main  ob- 
ject of  suspending  competition.  Again,  through  bills 
of  ladincr.  and  connections  from  the  East  to  the  West, 

ill  the  interest  of  the  public  as  well  as  in  the  interest  of  the  rail- 
ways." 

*  "These  associated  companies  assume  the  responsibility  of  delivering 
the  freight  to  points  of  destination  beyond  the  terminus  of  the  road  whicli 
originally  receives  the  freight.  They  issue  through  bills  of  lading,  and 
make  all  proper  arrangements  for  the  transfer  of  the  freight  from  one 
road  to  another,  for  settling  the  freight  charges  of  each  road,  and  adjust- 
ing all  legitimate  claims  for  loss  or  damages  accruing  on  any  part  of  the 
route,  thus  relieving  the  shipper  from  the  great  trouble,  annoyance,  and 
expense  dependent  upon  making  separate  arrangements  witli  each  road 
over  -which  the  freight  passes." — J//'.  Fink's  letter  to  New  York  Commis- 
sion, January  29th,  1835. 


224  The  Railways  and  the  Bepublic. 

were  established  before  the  pooling  associations  ever 
took  charge  of  the  work,  and  the  improvement  under 
that  method  is  of  slight  if  not  doubtful  value ;  while  as 
to  the  establishment  of  through  routes  of  transporta- 
tion, so  far  from  that  work  being  done  by  the  pools,  it 
has  always  been  done  outside  of  the  pools,  and  when 
accomplished  has,  by  its  competition,  always  produced 
a  new  disturbing  element  in  the  working  of  those  com- 
binations/^ 

The  examination  of  these  pleas  for  the  pools  having 
shown  mainly  what  they  do  not  do,  the  next  step  is  to 
examine  what  they  really  do  effect.  In  the  first  place, 
they  create  an  enormous  and  unrestrained  power  over 
commerce,  which  is  not  provided  for  in  legislation.  A 
journalist,  writing  of  the  trunk-line  pool  in  no  unfriend- 
ly spirit,  represents  it  as  V)earing  the  same  relation  to  the 
railways  that  the  federal  government  does  to  the  states; 
and  asserts  the  commissioner's  duties,  in  their  scope  and 
influence  on  the  business  interests  of  the  uation,  "  to  be 
only  second  to  those  of  the  President  of  the  United 
States."  Such  a  view  of  the  combination  has  been  dep- 
recated by  Mr.  Blanchard  ;  but  if  this  account  of  the 
power  of  the  trunk-line  pool  over  the  material  interests 
of  the  nation  is  defective  in  anything,  it  is  in  making 
the  pool  second  to  the  United  States  government.  The 
sole  advantage  possessed  by  the  United  States  govern- 
ment-is in  the  power  directly  to  enfoi'ce  allegiance  to 
the  compact  of  union ;  while  any  disaffected  member 
of  the  pool  may  secede.     This  right  of  secession  is  a 

*  "  Through  bills  of  lading  were  issued  long  before  the  organization  of 
the  trunk-line  pool,  and  the  service  then  rendered  was  quite  as  satisfac- 
tory as  under  the  present  system." — Letter  of  Trackrs  and  Travelers  Union 
to  New  Torlc  Commission,  Fehniary,  1885. 


The  Pooling  Policy.  225 

thorn  in  the  sides  of  the  adv^ocates  of  pooling;  and  the 
latest  development  of  their  theory  is  a  demand  that 
pooling  compacts  be  made  enforceable  by  law,  so  that 
no  one  shall  be  able  to  withdraw  from  the  combination 
when  once  it  is  formed.  If  this  were  done,  the  anoma- 
lous combination  of  corporations  would  clearly  hold  a 
power  over  business  vaster  than  either  the  United 
States  government  or  any  other,  under  a  representative 
system,  ever  possessed.  Neither  Congress  nor  a  state 
legislature  would  dare  to  pass  an  act  affecting  values 
throughout  the  country,  or  making  an  important  change 
in  taxation,  without  thorough  discussion  before  the 
public.  If  it  is  proposed  in  the  national  legislature  to 
make  a  change  of  10  or  20  per  cent,  in  the  tariff,  the 
subject  occupies  the  attention  of  Congress  or  its  com- 
mittees for  an  entire  session,  or  sometimes  for  two,  and 
a  notice  of  several  months  is  given  before  it  goes  into 
effect.  But  the  executive  board  of  a  railway  pool, 
meeting  in  a  private  office,  will  in  a  day's  session  make 
changes  in  rates  which  affect  commerce  more  than  any 
single  tariff  bill,  and  enact  edicts  which  may  suspend 
the  movements  of  great  staples  over  half  the  country. 
The  eidogist  of  the  pooling  system  who  placed  the 
pool  commissioner  second  in  power  to  the  President  of 
the  United  States  and  made  the  executive  committee 
less  mighty  than  Congress  was  too  modest  in  his  claims 
for  the  combination.  No  such  consolidation  of  railway 
power  was  contemplated  in  the  legislation  establishing 
the  railways.  The  spirit  of  American  institutions  is 
inconsistent  with  such  vast  and  arbitrary  powers  over 
public  interests.  The  agencies  of  the  government  are 
carefully  restricted  and  guarded  against  possible  excess 
in  their  employment.    Every  power  that  can  affect  the 

15 


226  The  Railways  and  the  BepuUic. 

actions  or  welfare  of  a  large  number  of  peoj^le  is  hedged 
around  by  the  most  careful  safeguards,  and  jealously 
watched  by  public  opinion,  save  one.  That  one  is  this 
anomalous  combination  of  the  corporate  creatures  of 
legislation  ;  a  combination  for  which  no  warrant  can  be 
discovered  in  their  charters;  but  which  has  risen  to  a 
control  over  commerce  that  was  never  conceived  until 
the  pool  showed  it  to  be  possible.  If,  as  has  been 
shown,  the  separate  and  individual  power  of  the  rail- 
way corporations,  each  over  its  own  business,  is  of 
dangerous  extent  and  requires  constant  watching  and 
most  careful  restrictions,  how  much  more  alarming  is 
the  combination  which  consolidates  that  power,  and 
seeks  to  establish  a  centralized  control  over  all  the 
avenues  of  trade?  When  we  find  the  orders  of  the 
pool  issued  in  New  York  and  repeated  in  San  Fran- 
cisco;"^ when  we  see  it  maintaining  a  monopoly  of  one 
great  iudustr}^,  and  dictating  the  number  of  days  in 
which  a  great  industry  shall  stand  idle,  fixing  a  limit 
on  the  aggregate  production,  and  prescribing  the  prices 
at  which  the  staple  shall  be  sold,  we  ought  to  be  able 
to  recognize  that  such  combinations  are  not  only  un- 
authorized in  law,  but  wholly  at  variance  Avith  the 
principles  on  which  representative  government  and 
popular  independence  are  founded. 

From  this  unrestrained  control  of  business  interests, 

*  Circular  of  George  W.  Ristine,  commissioner  of  the  Transcontinental 
Association,  repeating  Mr.  Fink's  order  tliat  local  rates  shall  be  charged 
on  freight  which  was  shipped  from  New  York  by  the  Delaware,  Lacka- 
wanna, and  Western  Railroad.  This  is  a  striking  illustration  of  the 
unity  with  which  widely  separated  organizations  act  in  concert,  as  it 
notifies  the  merchants  of  San  Francisco  that  the  rates  given  them  by  the 
contracts  of  Pacific  coast  railroading  would  not  be  maintained,  and  tliat 
the  contracts  are  abrogated  on  that  class  of  freiglit,  because  the  railroads 
on  the  other  side  of  the  continent  are  in  a  quarrel. 


The  Pooling  Policy.  227 

the  most  flagrant  and  dangerous  abuses  can  spring. 
The  connection  of  the  pool  with  some  notorious  dis- 
criminations, and  with  the  growth  of  at  least  two  great 
monopolies,  has  already  been  described.  But  fully  to 
appreciate  its  effects  we  must  note  the  fact  that,  with- 
out this  very  policy  of  combination,  which  is  alleged 
to  cure  discriminations,  these  abuses  could  never  have 
been  accomplished.  No  single  railway  could  ever  have 
perpetrated  the  Standard  Oil  infamy.  Without  the 
combination  of  all  the  anthracifce-coal  roads,  the  domi- 
nation of  that  industry  would  be  impossible.  While 
one  of  the  trunk  lines  refused  to  support  the  discrimi- 
nation against  dressed  beef,  the  rates  on  that  class  of 
shipments  were  brought  down  to  less  than  half  of  those 
established  by  the  pool.  A  single  railway  can  main- 
tain a  marked  and  inequitable  favoritism  between  in- 
dividual shippers  on  its  line.  But  to  establish  a  dis- 
crimination against  an  entire  interest,  or  to  maintain 
domination  over  an  important  industry,  the  union  of 
all  the  railways  engaged  in  the  traffic  is  necessary. 
When  that  union  is  accomplished  by  the  pool,  what  is 
to  prevent  it  from  extending  and  increasing  just  such 
abuses  as  those  already  mentioned  ?  If  the  pooling 
combinations  are  made  permanent,  why  may  they  not 
apply  to  the  iron  industry  the  same  policy  that  has 
conquered  the  petroleum  refining  industry?  The  main 
difficulty  is  to  devise  a  pool  which  will  hold  together 
firmly  enough,  and  in  such  cases  the  profit  to  be 
gained  by  a  monopoly  of  any  great  industry  has  al- 
ways furnished  the  most  effective  cohesive  force.  Why 
might  not  t\vo  or  three  more  roads  be  added  to  the 
present  trunk-line  pool,  prohibitory  rates  be  placed  on 
imported  iron,  and  the  business  of  the  iron  trade  given 


228  The  Railways  and  the  Bepublic. 

to  half  the  mills  and  furnaces  by  discriminating  rates, 
as  was  done  by  these  same  trunk  lines  in  the  case  of 
the  Standard  Oil  Company,  while  the  other  half  of  the 
Avorks  are  forced  to  suspension  and  decay  ?  All  this 
might  be  done  on  the  plea  of  preventing  undue  com- 
petition, sustaining  uniform  rates,  and  making  an  equi- 
table distribution  of  business,  with  as  much  plausibility 
as  some  other  things  have  been  done  in  recent  years. 
Or  if  the  railway  combination  prefers,  what  will  pre- 
vent it  from  taking  possession  of  such  portions  of  the 
iron  industry  as  it  may  select,  and  then  dictating  the 
wages  of  the  workmen,  ordering  the  suspension  of  pro- 
duction, and  fixing  arbitrary  prices  to  every  private 
buyer  of  nails  or  finished  iron  ?  What  has  been  done 
in  one  industry  can  be  done  in  others;  provided  only 
that  a  combination  can  be  formed  binding  the  railways 
to  such  a  policy.  Let  the  principle  of  pooling  be  com- 
pletely carried  out,  and  the  country  may  be  made  de- 
pendent upon  one  monopoly  for  its  su2:)ply  of  iron,  upon 
another  for  its  bituminous  coal,  and  upon  others  for  its 
meat,  its  cotton  and  woollen  goods,  and  its  glass-ware, 
just  as  it  now  is  for  its  petroleum  and  its  anthracite 
coal.  The  one  barrier  which  stands  between  the  people 
and  such  a  state  of  aftairs  is  the  failure  of  the  railways 
to  make  their  pools  sufficiently  compact  and  permanent. 
It  should  not  escape  public  attention,  as  it  cannot  es- 
cape the  attention  of  the  railway  managers,  that  the 
greatest  pecuniary  rewards  to  themselves,  if  not  to  their 
shareholders,  and  the  most  powerful  aid  in  solidifying 
their  combinations,  will  be  obtained  by  establishing 
such  monopolies  as  have  been  created  by  the  railway 
power  in  petroleum  and  anthracite  coal.* 
*  Another  less  prominent  example  might  be  added  to  these  in  the  gas- 


The  Pooling  Policy.  229 

It  is  one  bad  feature  of  pooling  combinations  that 
they  tend  to  deprive  the  public  of  the  benefits  of  im- 
provement in  the  railway  service.  They  destroy  the 
motive  to  attract  patronage  by  improved  service  or  by 
cheaper  I'ates.  It  is  true  that  this  policy  leaves  the 
railways  free  to  secure  for  themselves  all  economies 
that  can  be  made  by  lessening  the  cost  or  increasing 
the  safety  of  their  work.  But  they  no  longer  have 
any  inducement  to  extend  the  benefit  to  the  shipping 
public.  It  is  folly  for  a  pooling  railway  to  offer  in- 
creased accommodations  to  the  public,  in  hope  of  se- 
curing increased  patronage ;  for  the  road  will  get  from 
the  pool  exactly  its  allotted  share  of  patronage,  w^heth- 
er  it  affords  the  best  or  the  poorest  service  to  the  public. 
If  it  gives  the  best  accommodation,  and  thereby  secures 
more  than  its  share  of  patronage,  it  must  hand  over  its 
excess  or  an  equivalent  in  money  to  the  other  mem- 
bers of  the  pool ;  if  it  gives  the  w^orst  accommodation, 
and  thereby  loses  business,  the  loss  is  made  up  by  the 
pool  from  the  more  enterprising  and  j^rosperous  roads. 
The  effect  of  the  whole  system  is  to  allow  economies 
for  the  benefit  of  the  railways,  whether  by  improve- 
ments or  merely  through  niggardliness ;  but  to  destroy 
all  motive  for  striving  to  render  special  service  to  tlie 
public.  The  discovery  of  devices  for  cheapening  the 
services  of  the  railways  to  shippers  or  travellers  is  not 
a  benefit  to  the  pool.  Tiie  fundamental  idea  of  these 
combinations  is  to  divide  the  trafhc  among  the  rail- 
ways by  an  arbitrary  rule,  destroying  the  inducement 
to  attract  business  by  giving  the  public  the  benefit  of 

coal  industry,  wliicli  is  operated  solely  by  the  favoritism  of  the  Pennsyl- 
vania Railroad  and  tlie  Baltimore  and  Obio  Railroad.  The  coke  trade  is 
also  undergoing  the  same  process. 


230  The  Railways  and  the  BepuUic. 

improvements  and  economies.  When  the  pool  pro- 
tects its  members  against  loss  by  the  reduction  of  traf- 
fic that  naturally  follows  mean  accommodations,  the 
public  interest  is  greatly  prejudiced.  The  result  of 
such  protection  must  inevitably  be,  as  declared  by  the 
New  York  Court  of  Appeals  of  a  similar  pool,  "  that 
the  freighters  and  passengers  would  be  ill-served,  just 
in  proportion  that  carriers  would  be  well-paid."  ''^ 

The  artificial  maintenance  of  rates  by  pooling  com- 
binations has  several  positive  drawbacks,  considered 
solely  in  the  interests  of  the  corporations  which  form 
the  pools.  Most  prominent  among  these  is  the  fact  al- 
ready mentioned,  that  its  success  directly  and  power- 
fully stimulates  the  construction  of  competing  and  par- 
allel lines.  The  trunk-line  pool  demonstrates  this  fact. 
While  there  were  but  four  lines  performing  the  great 
services  of  transportation  from  East  to  West,  the  idea 
of  constructing  parallel  lines  to  divide  the  business 
seemed  wild  and  impracticable.  But  the  pool  created 
an  artificial  profit  on  their  business  for  some  years  from 
1877,  and  three  new  competing  lines  were  constructed 
under  independent  management ;  while  two  more  were 
established  under  the  control  of  the  already  existing 

*  The  New  York  Court  of  Appeals,  iu  declaring  the  pooling  combi- 
nation of  canal-boat  owners  to  be  illegal,  pointed  out  this  inevitable 
tendency  as  follows  :  "  The  association  being  thus  secure  against  intei'- 
nal  defections  and  external  encroachments,  and  the  members  having  thus 
thrown  their  concerns  into  stock  to  derive  an  income  in  proportion  to 
the  number  of  shares  they  hold  and  not  according  to  their  merit  and  ac- 
tivity in  business,  and  safe  against  the  reduction  that  would  otherwise 
follow  mean  accommodations  and  want  of  skill  and  attention,  the  public 
interests  must  necessarily  suffer  grievous  loss.  Indeed,  the  consequence 
of  such  a  state  of  things  would  be  that  freighters  and  passengers  would 
be  ill-served  just  in  proportion  that  carriers  would  be  well-paid."' — Stan- 
ton vs.  Allen,  5  Dcnio,  434.. 


The  Pooling  Policy.  231 

lines  which  desired  a  larger  share  of  the  traffic.  The 
addition  of  new  trunk  lines  has  thus  been  largely  in 
excess  of  the  growth  in  the  volume  of  through  freight. 
Perhaps  new  trunk  lines  would  have  been  built  if 
there  had  been  no  pool,  and  there  might  have  been 
some  inflation  in  their  stocks  and  bonds  ;  but  the  prof- 
its made  by  the  artificial  rates  of  the  pool  stimulated 
such  operations,  and  led  to  the  extravagance  with 
which  they  were  carried  out.  It  has  been  recognized 
by  leading  railway  men,  in  the  language  recently  at- 
tributed to  one  of  them,  that  "pooling  increases  the 
temptation  to  build  unnecessary  roads."  It  must  also 
be  acknowledged  that  pooling  places  circuitous  and 
disadvantageous  routes  on  an  equality  with  those  which 
are  direct  and  best  prepared  to  perform  the  work  of 
transportation.  The  theory  of  the  pool  is  that  the 
strong  and  direct  lines  must  divide  their  business  with 
the  weak  and  roundabout  ones,  not  out  of  generosit}', 
but  lest  the  latter  should  cut  rates  and  cause  the  former 
loss.  This  has  been  carried  to  the  remarkable  result, 
in  the  passenger  pools,  of  declaring  that  roundabout 
lines  shall  have  the  privilege  of  carrying  through  pas- 
sen2;ers  at  less  than  the  res-ular  rates,  in  order  to  o-ain 
business  by  compensating  for  the  loss  of  time.  In  oth- 
er words,  the  principle  of  "  differentials,"  in  passenger 
traffic,  means  that  the  roads  shall  be  put  on  an  equal- 
ity, by  letting  some  of  them  perform  more  work  for  a 
less  charge.  This  may  be  correct  if  the  maintenance 
of  artificial  rates  is  an  absolute  necessity;  but  if  it  is 
not,  the  roads  which  are  able  to  do  the  largest  busi- 
ness most  directly  and  expeditiously  can,  it  is  evident, 
make  a  profit  at  rates  which  will  bring  only  loss  to 
those  which  are  stru2:i?linn:  under  a  load  of  debt,  or 


232  The  Railways  and  the  BejyvMic. 

must  haul  tbeir  freisrbt  over  a  lomz:  and  indirect  route. 
In  this  resj^ect  the  pool  exhibits  the  weakness  of  all 
combinations,  wbetber  trade  unions  or  pools  of  capital ; 
it  throws  the  burdens  on  its  energetic,  solvent,  and  ca- 
pable members,  and  diminishes  the  penalties  for  ineffi- 
ciency and  insolvenc}'. 

Another  unfovorable  influence  of  pools  upon  the 
railways  is  their  tendency  to  increase  the  frequency  and 
violence  of  railway  wars,  to  which  the  companies  resort 
in  order  to  secure  advantages  in  the  combination. 
These  contests  are  appealed  to  as  justifying  pools,  but, 
in  fact,  their  extreme  character  is  simply  a  result  of  the 
pooling  policy.  The  notion  that  the  pool  is  essential 
to  the  prosj^erity  of  the  railways,  being  generally  ac- 
cepted as  railway  gos2:)el,  the  universal  effort  in  case  of 
disagreement  or  rebellion  is  to  inflict  such  loss  and  dam- 
acre  as  will  drive  the  offending:  members  back  into  the 
pool.  If  a  railway  can  vitally  damage  the  business  of  its 
rivals,  it  is  reckless  of  the  loss  to  itself,  hoping  for  com- 
pensation when  the  pool  rates  are  restored.  Thus  the 
rivalry  goes  on  fi'om  bad  to  worse,  each  contestant 
hoping  to  drive  its  opponents  back  into  the  pool  on 
terms  to  be  dictated  by  itself  But  it  is  essential  to 
observe  that  the  bitterness  of  these  contests  is  not  the 
result  of  legitimate  competition,  but  is  caused  by  the 
control  of  the  pools.  The  pool  abolishes  the  natural 
competition,  w^hich  brings  rates  into  just  relations  to  the 
cost  of  service,  as  completely  during  its  periods  of  rupture 
as  during  its  periods  of  success.  The  fierce  and  ruinous 
rivalry  which  springs  up  whenever  the  members  of  the 
pool  fttll  to  quarrelling  is  simply  the  effort  to  re-estab- 
lish the  combination.  The  violence  of  such  contests  is 
the  reaction  from  the  arbitrary  character  of  the  com- 


The  Pooling  Policy,  233 

pacts,  and  has  no  more  actual  kindred  with  legitimate 
competition  than  the  compacts  themselves  have. 

A  grave  eftect  of  this  policy,  though  not  easily  cal- 
culable, is  the  ability  it  gives  to  railway  officials  to 
control  the  prices  of  stocks,  and  the  temptation  to 
enhance  their  fortunes  by  doing  so.  The  unprece- 
dented speculation  which  followed  the  inception  of  the 
pooling  policy  caused  an  advance  in  the  value  of 
railway  securities  to  the  amount  of  hundreds  of  millions 
of  dollars ;  and  it  is  an  open  secret  that  great  fortunes 
were  built  up  from  1877  to  1882  by  bold  speculatioUy 
relying  upon  the  effect  of  the  pooling  policy  upon  the 
Wall  Street  valuations  of  railway  property.  Prob- 
ably a  correct  estimate  of  the  affection  of  railway 
men  for  the  pooling  policy  would  be  reached  by  a  com- 
parison of  the  increase  of  the  net  railway  earnings  be- 
tween 1877  and  1880,  with  the  total  advance  in  prices  of 
stocks,  and  by  the  discovery  that  the  actual  gain  of 
earnings  was  not  a  tithe  of  the  speculative  profits 
from  the  inflation  produced  b}^  the  pool.  It  is  not 
alone  in  speculation  for  an  advance  that  the  power 
and  knowledge  of  the  railway  in  the  pool  can  be  used 
to  individual  advantage.  How  many  of  the  disputes 
among  the  pooling  railways,  during  the  last  three  or 
four  years,  were  really  incited  to  make  profitable 
speculations  on  the  short  side  of  stocks  is  of  course  be- 
yond liuman  knowledge ;  but  if  the  actual  number  is 
one  half  of  the  number  of  assertions  of  this  kind  in  the 
public  press,  the  evil  from  this  one  source  is  greater 
than  all  the  advantages  of  pooling.  A  dispute  can  be 
precipitated  to  affect  the  stock  market  far  more  easily 
than  a  pool  can  be  reorganized  for  the  same  purpose. 
It  takes  the  united  action  of  all  the  leading  officials  of 


234  The  Hallways  and  the  Republic. 

the  rival  roads  to  form  a  pool ;  but  a  single  traffic 
manager  or  general  agent  can,  by  the  indirect  and  se- 
cret methods  of  which  the  history  of  pooling  is  so  pro- 
lific, start  a  rivalry  in  rate-cutting  that  will  make 
"  bear  "  operations  profitable.  Such  a  man,  if  brought 
to  account,  can  defend  his  action  on  the  plea  or  suspi- 
cion that  his  rivals  were  cutting  rates.  It  may  be 
hoped  and  believed  that  the  majority  of  railway  men 
are  superior  to  such  temptations  ;  but  the  nature  of  the 
case  gives  the  unscrupulous  man  an  advantage  over 
others  in  being  able  to  enrich  himself  by  stirring  up 
complications  in  the  pool ;  while  the  legitimate  interests 
of  the  shareholders  suffer.  It  is  a  heavy  indictment 
against  the  pooling  system  that  it  gives  power  to 
avaricious  and  unscrupulous  men  in  railway  manage- 
ment, to  enrich  themselves  at  the  cost  of  shareholders 
and  investors,  both  by  forming  combinations  and  by 
exciting  disputes  or  ruptures  in  them. 

These  objections  to  pooling  combinations  are  not 
fanciful,  nor  are  they  prompted  by  animosity  towards 
the  railway  system.  They  rest  upon  public  principles 
which  are  inherent  and  fundamental  in  our  system  of 
law,  and  have  been  applied  in  a  long  line  of  judicial 
decisions  holding  all  such  contracts  to  be  against  public 
policy  and  void.  The  illegality  of  agreements  restraining 
trade  and  limiting  competition  was  a  well-established 
principle  of  jurisprudence  before  railways  were  thought 
of.  "  As  for  back  as  the  reign  of  Henry  V.,"  said  the 
Supreme  Court  of  Massachusetts,  nearly  half  a  century 
ao-o, "  it  was  held  as  old  and  settled  law  that  bonds  in  re- 
straint  of  trade  are  void."  It  is  further  reported  that 
when  a  bond  of  this  sort  Avas  produced  in  court  by  the 
plaintiff's  law^yer,  the  fifteenth-century  judge  flew  into  a 


The  Fooling  Policy.  235 

passion  and  declared  in  old  law  Freneb,that  "if  the  plain- 
tiff was  here,  he  should  go  to  prison  until  he  had  paid 
a  good  round  fine  to  the  king  for  his  pains,  by  G — ." 
The  early  decisions  in  this  country  adopted  the  same 
principle.  In  Massachusetts,  when  the  seller  of  a  gro- 
cery store  agreed  not  to  start  a  new  one  within  a  cer- 
tain distance,  and  when  a  contractor  bound  himself  not 
to  run  a  stage  in  opposition  to  the  obligee,  the  contracts 
were  sustained,  "as  of  limited  application  and  for  a 
valid  consideration."  But  it  was  insisted  that  in  every 
such  case  a  limited  a23plication  and  a  valid  considera- 
tion must  be  unmistakably  shown.'"^  The  distinction 
between  such  agreements  and  illegal  contracts  in  re- 
straint of  trade  was  clearly  drawn,  in  1837,  in  the  case 
of  Alger  vs.  Thatcher,  by  the  Supreme  Court  of  Mas- 
sachusetts.f  This  leading  decision,  made  before  the 
railways  came  into  prominence  in  commerce,  and  de- 
fining the  principles  on  which  the  law  protects  trade 
against  artificial  restraints  by  combinations  and  con- 
tracts, applies  to  the  railway  pools  precisely  as  if  writ- 
ten with  them  in  view.  It  shows  that  the  common 
law,  from  the  first,  forbade  agreements  to  restrict  the 
freedom  of  trade,  that  this  principle  has  been  preserved 

*  In  Pierce  ts.  Fuller  (8  Mass.  223),  1811,  Judge  Sedgwick  said  that 
"bonds to  restrain  trade  in  general  are  unquestionably  bad,  as  tending  to 
create  a  monopoly  injurious  to  the  public.  .  .  •  And  if  it  does  not  appear 
■whether  the  contract  was  made  on  good  consideration,  so  that  the  con- 
tract may  be  either  good  or  bad,  it  is  the  prima  facie  presumption  of  law 
that  the  contract  is  bad,  because  it  is  to  the  prejudice  of  trade  and  hon- 
est industry.  .  .  .  Therefore  all  contracts  barely  in  restraint  of  trade, 
where  no  consideration  is  shown,  are  bad."  But  the  court  in  tliis  case 
sustained  the  contract  as  of  limited  influence  and  for  a  valid  considera- 
tion. The  report  cites  numerous  authorities  to  show  that  in  order  that 
a  contract  in  restraint  of  trade  may  be  valid  it  must  be  "  partial,  reasonable, 
and  for  a  valid  consideration."  Also  1  Pickering,  450,  3  Pickering,  188, 
and  G  Pickering,  208.  1 19  Pickering,  51. 


236  The  Railways  and  the  Repiiblic. 

by  all  enlightened  jurisprudence;  and  is  "universal 
in  its  application,  salutary  in  its  effect,  and  in  accord 
with  the  spirit  of  our  institutions."  After  stating,  as 
objections  to  such  contracts,  that  they  injure  the  parties 
making  them,  by  a  surrender  of  their  commercial 
rights,  tliat  they  deprive  the  public  of  the  full  benefit 
of  the  extension  of  trade,  and  that  they  discourage  the 
growth  of  enterprise  and  industry,  the  court  almost 
prophetically  added :  "They  expose  the  public  to  all  the 
evils  of  monopoly.  This  is  especiall}^  applicable  to 
lar2;e  corporations,  "who  have  the  means,  unless  re- 
strained by  law,  to  exclude  rivalry,  monopolize  busi- 
ness, and  engross  the  market.  Against  evils  like  these, 
wise  laws  protect  individuals  and  the  public  by  de- 
claring all  such  contracts  void."  When  the  mere 
agreement  to  abstain  from  a  contingent  competition 
in  the  iron  -  founding  business  called  for  the  enuncia- 
tion of  legal  principles  like  these,  which  have  been  rec- 
ognized authoi-ity  forforty-eight  years,  it  is  not  surpris- 
ing that  the  railways  do  not  care  to  submit  their  pool- 
ins:  a2:reements  to  iudicial  criticism. 

The  illegality  of  all  combinations  to  suspend  com- 
petition has  been  affirmed  by  almost  every  court  be- 
fore which  the  question  has  been  brought.  By  the  Su- 
preme Court  of  Ohio,  a  contract  for  a  combination 
among  salt-manufacturing  companies  was  declared  un- 
lawful, in  language  wliich  is  strikingly  applicable  to 
railway  pools.*     Still  more  emphatic  was  the  language 

*  "  The  clear  tendency  of  such  an  agreement  is  to  establish  a  monopoly 
and  to  destroy  competition  in  trade  ;  and  for  that  reason,  on  grounds  of 
public  policy,  courts  will  not  aid  in  its  enforcement.  It  is  no  answer  to 
say  that  competition  in  the  salt  trade  was  not  in  fact  destroyed,  or  that 
the  ijrice  of  the  commodity  was  not  unreasonably  advanced.  Courts 
will  not  stop  to  inquire  the  degree  of  injury  inflicted  upon  the  public; 


The  Pooling  Policy.  237 

of  the  Supreme  Court  of  Pennsylvania  in  declaring  the 
illegality  of  an  agreement  between  five  coal-mining  com- 
panies to  fix  the  amount  of  each  one's  product, to  bi'ing 
the  prices  and  sales  under  the  control  of  the  combination, 
to  provide  for  payments  in  adjustment  of  the  fixed  pro- 
portions, and,  in  short,  to  apply  the  essential  features  of 
the  pooling  system  to  their  business.  This  combina- 
tion was  declared,  in  terms  much  stronger  than  any  yet 
quoted,  to  be  unlawful  and  intolerable  to  the  public 
interest.'^  "  Such  a  combination,"  said  Judge  Agnew, 
"  is  more  than  a  contract :  it  is  an  offence ;"  and  he  cited 
a  former  eminent  justice  as  authoi'ity  for  saying  that, 
where  the  public  is  subjected  to  the  power  of  confed- 
erates, "  a  combination  is  criminal."  This  view  is  fur- 
ther confirmed  by  the  Court  of  Appeals  of  New  York, 
in  a  case  involving  the  precise  methods  of  the  railway 
pools,  the  chief  difterence  being  that  the  combination 
was  less  powerful,  and  the  public  interests  affected  were 
of  less  magnitude,  than  in  any  railway  pool.  The  pro- 
prietors of  boats  on  the  Xew  York  canals  formed  a 
pool  to  regulate  the  rates  of  freight  and  passage;  the 
profits  were  to  be  divided  according  to  the  number  of 
boats  operated  by  each,  and  members  were  forbidden 
to  conduct  business  outside  of  the  association.  This 
miniature  of  tlie  railway  pool  was  lield  by  the  court 
to  be  "nothing  less  than  the  attainment  of  the  exemption 
of  the  standard  of  freights,  and  the  facilities  and  accom- 
modations to  be  rendered  to  the  public,  from  the  whole- 
some influence  of  rivalry  and  competition."f 

it  is  cnougli  to  know  tliat  the  inevitiible  tendency  of  sucli  contracts  is 
injurious  to  the  public." — Salt  Company  vs.  Guthrie,  35  Ohio  State  Re- 
ports, 672. 

*  Morris  Run  Coal  Co.  m.  Barclay  Coal  Co.,  68  Pa.  St,  173. 

t  Stantcn  vs.  Allen,  5  Dcnio,434 ;  also  Ilookcr  rs.VaudcvjItcr,  4  Deuio,  349. 


238  The  Railways  and  the  Bepublic. 

This  principle  of  the  common  law,  laid  down  in  Eng- 
land four  hundred  and  sixty  years  ago,was  announced  by 
Coke,"  forcibly  enunciated  by  a  high  American  court  be- 
fore the  railway  system  was  created,  and  has  been  main- 
tained, defined,  and  applied  by  a  series  of  decisions  in  the 
federal  and  state  courts,  so  that  it  is  now  easy  to  apply 
it  to  the  prevailing  practices  of  the  railways.  All  that 
has  been  said  concerning  the  illegality  of  contracts  in 
restraint  of  trade  applies  irith  multiplied  force  to  the 
railway  pools.  If  such  contracts  are  injurious  to  the 
public  interests,  when  they  affect  but  a  single  iron-manu- 
facturing establishment,  or  combine  a  dozen  salt  com- 
panies, or  five  coal-mining  organizations,  or  the  carriers 
on  a  cou2:)le  of  canals,  how  much  greater  is  the  public 
necessity  for  the  protection  of  law  against  them  when 
the  influence  of  a  single  pool  controls  the  trade  of  half 
a  dozen  states,  and  its  orders  run  from  ocean  to  ocean  ? 
Every  word  quoted  from  the  older  decisions  is  a  pro- 
phetic warning  against  the  policy  of  combination  which 
now  rules  the  railway  world.  Every  condemnation  of 
pooling  devices  found  in  the  later  decisions  is  a  judi- 
cial condemnation  of  the  railway  pools,  and  their  ex- 
istence is  a  defiance  of  the  law  and  the  courts. 

The  antagonism  between  the  pools  and  the  law  is 
sharply  defined  by  contrasting  their  practices  in  detail 
with  the  utterances  of  the  higher  courts  on  the  subject. 
The  primary  object  of  these  combinations  is  to  raise 
the  rates  of  freight,  and  the  first  means  adopted  is  to 
suspend  competition,  and  place  the  trafiic  under  the 
exclusive  control  of  the  combination.     The  traffic  is  di- 

*"A  monopoly  has  three  incidents  miscliievous  to  the  public:  1,  the 
raising  of  the  price ;  2,  the  commodity  y<\\\  not  be  as  good ;  3,  the  im- 
poverishing of  poor  artificers." — Davy  ts.  Allen,  11  Coke,  384. 


The  PooUnrj  Policy.  239 

vided  by  fixed  percentages ;  each  member  of  the  pool 
is  limited  to  its  allotted  share  of  the  business ;  in  some 
cases  the  members  of  the  pool  are  bound  to  abstain 
from  certain  classes  of  traffic,  and  in  otliers  the  total 
volume  of  the  traffic  is  limited  in  advance.  Yet  it  is 
combination  for  these  precise  purposes  that  has  been 
denounced  by  English  decisions  for  four  centuries,  and 
forbidden  by  the  American  courts  for  the  last  half-cen- 
tury. Such  contracts  were  declared  by  the  Supreme 
Court  of  Massachusetts,  in  1837,  to  expose  the  people 
to  all  the  evils  of  monopoly :  "  And  this  is  especially 
applicable  to  large  corporations,  who  have  the  means, 
unless  restrained  by  law,  to  exclude  rivalry,  monopo- 
lize business,  and  engross  the  market."  Chief-justice 
Parker  had  previously  declared,  "  Another  reason  is 
the  great  abuses  these  voluntary  restraints  are  liable 
to;  as,  for  instance,  from  corporations  who  are  perpet- 
ually laboring  for  exclusive  advantages."  '•"  There  is  no 
reason  why  railways  should  be  excepted  from  the  ap- 
plication of  these  principles.  The  reasons  on  which 
the  courts  have  based  them  have  much  greater  co- 
gency in  railway  transportation  than  in  any  other  pub- 
lic interest.  "  This  doctrine,"  said  Justice  Morton, 
"  extends  to  all  branches  of  trade  and  to  all  kinds  of 
business.  ...  It  is  founded  on  great  principles  of  pub- 
lic policy,  and  carries  out  our  constitutional  prohibition 
of  monopolies  and  exclusive  privileges." 

Some  of  the  remarks  upon  pooling,  in  the  preceding 
pages,  may  be  regarded  as  extreme.  But  none  of  them 
are  so  severe  as  the  judicial  condemnation  of  exactly 
similar  devices.  The  learned  and  conservative  judges 
who  have  been  called  upon  to  determine  whether  such 

*  Mitchell  ts.  Reynolds,  1  P.  Williams,  190. 


240  The  Hallways  and  the  Be^pulliG, 

combinations  are  lawful,  have  not  been  content  to  de- 
clare their  injurious  tendencies;  they  have  denounced 
them  as  criminal  offences  and  conspiracies  against  the 
public.  "  I  take  it,"  says  Judge  Gibson,  "  that  a  com- 
bination is  criminal,  wherever  the  act  lias  a  necessary 
tendency  to  prejudice  the  public  or  to  oppress  individ- 
uals, by  unjustly  subjecting  them  to  the  power  of  con- 
federates.""'  "Sucli  a  combination,"  says  the  Supreme 
Court  of  Pennsylvania  (of  a  coal  compact  similar  to 
the  anthracite  pool),  "is  more  than  a  contract:  it  is  an 
offence.  ...  In  all  such  combinations  where  the  pur- 
pose is  injurious  or  unlawful,  the  gist  of  the  offence  is 
conspirac}^'  It  is  not  a  defence,  either  to  claim,  as  has 
been  done  by  the  pooling  advocates,  that  the  operations 
of  the  pools  are  only  partially  successful  in  suspending 
competition,  or  that  their  effect  has  not  so  far  been  un- 
duly to  raise  rates.  The  mere  fact  of  a  combination  to 
restrain  free  competition,  whether  its  effect  is  moder- 
ate or  extortionate,  is  enough  to  secure  its  condemna- 
tion by  the  courts.  "  It  is  no  answer,"  says  the  Su- 
preme Court  of  Ohio,  "  to  say  that  competition  in  the 
salt  trade  was  not  destroyed,  or  that  the  price  of  the 
commodity  was  not  unreasonably  advanced.  Courts 
will  not  stop  to  inquire  as  to  the  degree  of  injury  in- 
flicted on  the  public;  it  is  enough  to  know  that  the 
inevitable  tendency  of  such  contracts  is  injurious  to 
the  public." 

When  the  courts  express  themselves  in  terms  of 
such  severity  concerning  merely  locab  combinations  in 
the  canal,  coal,  or  salt  interests,  what  burning  words 
could  be  found  adequate  to  express  the  judicial  indig- 
nation at  agreements  ^vhich  affect  the  price  of  trans- 

*  Commonwealth  of  Penusylvania  vs.  Carlisle,  Brightley,  40. 


The  Pooling  Policy.  241 

portatiou  for  the  entire  country  aud  control  the  freight 
traffic  of  half  a  dozen  states.  Few  judges  have  had 
occasion  to  make  such  a  severe  draft  on  the  vocabu- 
lary of  condemnation,  for  the  pooling  authorities  have 
never  allowed  their  combinations  to  be  seriously  tested 
in  any  court.  The  radical  and  decisive  declarations 
by  the  courts,  of  the  illegality  of  similar  combinations, 
have  given  the  railroads  good  reason  to  keep  their 
agreements  from  the  criticisms  of  any  independent  and 
impartial  judge.  Not  only  have  the  pooling  railways 
abstained  from  asserting  in  the  courts  the  legality  of 
their  contracts, but  whenever  those  contracts  have  been 
a  collateral  issue  in  a  suit,  they  have  allowed  it  to  pass 
practically  without  defence.  The  result  has  been  that, 
while  the  decisions  on  similar  cases  are  abundant  and 
conclusive,  those  directly  involving  the  railway  agree- 
ments are  very  few.  In  England  the  subject  was 
brought  directly  to  a  legal  test  by  a  suit  to  enjoin  a 
pool  representing  two  railroad  companies,  and  the  vice- 
chancellor  declared  the  contract  "  so  clearly  and  palpa- 
bly illegal  that  I  do  not  think  the  court  ought  to  hesi- 
tate." "'    In  this  country  the  question  of  railway  pooling 

*  "  An  agreement  tli:it  the  profits  and  loss  shall  be  brought  into  one 
common  fund,  and  the  net  receipts  divided  into  two  shares  of  nine  tenths 
and  one  tenth  without  the  authority  of  Parliament,  appeared  to  me  so 
clearly  and  palpably  illegal  that  I  do  not  think  the  court  ought  to  hesi- 
tate in  its  views  in  that  respect ;  otherwise  it  might  be  that  all  tlie  rail- 
ways in  tlic  kingdom  might  be  collected  into  one  large  joint-stock  con- 
cern" (Charlton  ts.  New  Castle,  etc..  Railway  Companj',  5  Jur.  U.  S.  1100). 
It  is,  indeed,  claimed  that  the  authority  of  Parliament  has  since  been 
given  to  certain  combinations  of  a  similar  character.  But  if  so,  the  fact 
simply  illustrates  the  power  which  capital  can  exert  in  that  land  of  plu- 
tocracy and  privilege.  Further  light  is  thrown  upon  this  claim  by  the 
following  extract  from  Mr.  Glasscock's  speech  in  the  House  of  Represen- 
tatives last  winter:  "  Considerable  has  been  said  in  the  course  of  this  de- 
bate concerning  the  English  policy  of  railway  amalgamations,  and  the 

16 


242  The  Railways  and  the  liejpuUic. 

has  been  involved  in  four  suits,  all  of  which  were,  I 
believe,  brought  before  the  courts  of  the  United  States. 
In  each  of  them  the  suit  was  ao-ainst  a  member  of  the 
combination,  brought  to  prevent  the  enforcement  of 
some  of  the  rules  by  which  the  pools  are  sustained, 
and  in  each  the  decision  of  the  court  was  against  the 
legality  of  the  rules.  One  of  these  suits  was  between 
the  Denver  and  New  Orleans  and  the  Atchison,  To- 
peka,  and  Santa  Fe  railways.  In  this  case  the  pooling 
agreement,  b}^  which  the  latter  company  refused  to  take 
passengers  and  freight  from  the  former,  on  equal  terms 
with  those  from  the  two  other  roads  with  which  it 
was  combined,  was  judicially  characterized  as  a  "con- 
spiracy  to  grasp  commerce  and  to  suppress  the  build- 
ing of  railroads  in  two  great  states."  *  The  Delaware, 
Lackawanna,  and  Western  Railway  applied  for  protec- 
tion  by  injunction  against  the  order  of  the  pooling 

impression  has  been  conveyed,  ■whether  designedly  or  not,  that  in  Eng- 
hmd  pooling  is  recognized  as  lawful.  Not  so.  On  the  contrary,  when- 
ever a  pooling  contract  has  come  before  the  courts  it  has  been  declared 
void.  The  common-law  doctrine,  that  all  contracts  between  companies 
to  pool  their  earnings  and  divide  the  profits  on  other  than  a  natural  basis 
are  void,  has  been  steadily  adhered  to,  and  is  still  the  rule.  One  citation 
will  answer  for  a  dozen.  There  are  two  lines  of  railway  between  Eugby 
and  Slirewsbury.  These  roads,  as  to  competitive  tratiic,  entered  into  a 
pooling  contract.  This  contract  came  before  the  courts  in  the  case  of 
the  Shrewsbury  and  Birmingham  Railroad  Company  ts.  The  Northwest- 
ern Railroad  Company  (4  De  G.  &  McN.  134),  and  was  held  unlawful,  on 
the  grounds  that  it  j^rovided  for  an  alienation  by  one  of  these  companies 
of  a  portion  of  its  traffic  to  the  other,  and  that  it  was  against  public  jiol- 
icy." 

*  15  Fed.  Rep.  650.  In  this  decision,  Avhich  was  sustained  by  Judge 
McCrary,  .Judge  Hallett  made  use  of  the  following  forcible  language : 
"An  association  of  carriers  to  regulate  the  price  of  freight,  with  provi- 
sions prohibiting  the  members  from  engaging  in  similar  business  out  of 
the  association,  has  a  tendency  to  increase  the  price  of  carriage  and  to 
suppress  competition,  and  is  therefore  illegal." 


The  Pooling  Policy.  2-13 

officials  making  higher  rates  upon  its  freight  than  on 
that  of  other  roads,  thus  placing  its  traffic  under  the 
ban  of  the  railway  empire.  Thus  the  issue  more 
directly  concerned  the  discrimination  which  the  pool 
sought  to  enforce,  than  the  public  character  of  the  pool 
itself.  Whether  the  decision  involved  the  illegality  of 
the  pool  or  only  the  illegality  of  its  methods,  it  was 
very  decidedly  against  the  pool.  The  suit  of  the  Con- 
tinental Sugar  Refining  Company  against  the  Chicago, 
Kock  Island,  and  Pacific  Railroad  involved  another  of 
the  practices  by  which  the  pools  sustain  themselves, 
that  of  diverting  fi-eight  from  the  line  designated  by 
the  shipper.  The  temporary  injunction  was  granted, 
on  the  ground  that  the  diversion  could  not  be  allowed 
against  the  wish  of  the  shipper.  The  fiict  that  the 
railways  refrained  from  further  contest  was  referred  to 
by  one  of  their  organs  as  an  evidence  of  their  mag- 
nanimity.'^ But  their  course  was  evidently  prompted 
by  other  considerations.  The  maintenance  of  the  pool 
was  too  important  to  be  set  at  risk  by  appeal  to  a 
court  whose  decision  would  be  final.  AVhile  they  ac- 
quiesced in  the  decision,  as  far  as  it  affected  the 
shipments  of  the  plaintiff,  they  violated  its  principles, 
and  maintained  the  practice  it  declared  illegal,  on  the 
shipments  of  thousands  of  others.  What  their  con- 
duct showed,  therefore,  was  not  that  the  case  was  not, 

*  "A  temporary  injunction  was  granted,  ■whereupon  some  anti-railway 
enthusiasts  -went  so  far  as  to  claim  that  this  complaint  would  be  a  death- 
blow to  pools,  coniidcntly  expecting  the  railway  would  contest  the  legal- 
ity of  the  injunction  and  be  conclusively  overthrown.  Rightly  consider- 
ing, however,  that  the  importance  of  the  case  was  not  such  as  to  warrant 
any  protracted  and  expensive  litigation,  the  Southwestern  pool  refrained 
from  any  decided  opposition,  and  allowed  the  Boston  concern  to  continue 
forwarding  its  sugar  over  the  lines  of  the  Chicago,  Kock  Island,  and  Pa- 
cific Railway." — Bailway  World. 


244  The  Railways  and  the  Hepvhlic. 

as  tbeir  organ  said,  of  importance  enough  to  warrant 
"protracted  and  expensive  litigation,"  but  tliat,  Low- 
ever  important  tlie  particular  case  might  be,  the  prin- 
ciple which  it  involved  was  one  of  far  greater  impor- 
tance; and  they  preferred  quietly  to  accept  defeat  in 
this  instance,  rather  than  give  an  opportunity  to  the 
law  to  express  itself  authoritatively  on  their  entire  sys- 
tem of  operation.  They  doubtless  apprehended  that  if 
they  contested  this  decision  in  the  higher  courts  the 
suit  might  be,  as  "  confidently  expected,"  fatal  to  the 
pools.  The  matter  was  dropped  by  the  railways  in  this 
case,  as  in  all  others  which  bring  the  question  of  pool- 
ing before  the  courts,  simply  because  of  the  belief  of 
the  railway  managers  that  to  submit  the  validity  of 
pooling  agreements  to  the  courts  would  be  a  death- 
blow to  the  pooL 

Another  pooling  question  recently  came  before  the 
courts,  which  not  only  called  out  a  sharp  condemnation 
of  pooling  contracts,  but  suggests  that  the  railway  of- 
ficers who  have  carried  out  some  of  their  provisions 
occupy  a  rather  perilous  position  before  the  criminal 
law.  An  agreement,  in  the  common  form  of  money 
pools,  existed  between  the  roads  engaged  in  the  trans- 
portation of  coal  from  the  Hocking  Valley  regions,  by 
which  one  of  them,  conducting  a  large  trafiSc,  was  to 
pay  a  considerable  share  of  its  earnings  to  other  com- 
panies; a  draft  upon  its  life-blood  which  eventually 
sent  it  into  the  hands  of  a  receiver.  The  receiver,  after 
operating  the  road  for  some  time,  accumulated  ^100,000 
of  earnings,  which,  by  the  terms  of  the  agreement,  was 
to  go  to  the  other  pooling  companies.  Hesitating  to 
make  a  gift  of  funds  to  the  competitors  of  the  road, 
while  the  bondholders  were  waiting  for  their  interest, 


The  Pooling  Policy.  245 

lie  submitted  the  matter  to  the  court  which  had  appoint- 
ed him,  the  District  Court  of  the  United  States  for 
Northern  Ohio.  Judge  Baxter,  with  some  of  the  indig- 
nation of  the  old  fifteenth-century  judge  already  referred 
to,  ordered  that  he  should  "not  only  not  pay  out  this 
money,  but  to  pay  no  money  whatever  for  any  such 
purpose  while  the  road  is  in  the  custody  of  this  court," 
adding,  ''such  contracts  as  these  are  no  more  to  be 
respected  by  the  law  than  any  other  gambling  con- 
tracts." This  w^as  conclusive  as  regards  the  duty  of  a 
receiv^er;  but  how  does  his  duty,  in  this  respect,  differ 
from  that  of  the  officers  of  a  solvent  corporation  ?  One 
is  trustee  for  the  creditors  of  an  insolvent  concern, 
the  others  are  trustees  for  the  creditors  and  owners  of 
a  solvent  concern.  Both  hold  funds  as  trusts  for  cer- 
tain purposes.  It  is  clear  that  the  receiver  has  no 
right  to  divert  the  earnings  of  the  company  from  the 
payment  of  the  bondholders,  after  it  has  defaulted  on 
its  interest.  What  right  had  the  president  and  board 
of  directors  to  make  the  same  diversion  of  funds  just 
before  it  defaulted  ?  What  is  to  prevent  the  creditors 
of  this  road,  who  are  waiting  for  their  money,  from  in- 
stituting proceedings  for  breach  of  trust  against  these 
officers,  in  paying  out,  for  unauthorized  purposes,  money 
which  should  have  been,  but  was  not,  applied  to  the 
payment  of  interest?  What  prevents  the  stockholders 
of  any  solvent  raih'oad  from  instituting  criminal  pro- 
ceedings against  the  officers  \\\\q>  pay  out  funds,  which 
have  been  fairly  earned  for  dividends,  to  enrich  rival 
companies  who  have  earned  less?  It  would  be  an  un- 
expected and  startling  result  of  these  devices  for  the 
improvement  and  elevation  of  the  i-ailway  interest,  if 
some  of  the  respectable  pooling  officials  should  find 


246  The  Bailways  and  the  Repvhlic. 

themselves  lodged  in  the  penitentiaries  for  breach  of 
trust,  criminal  conspiracy,  and  embezzlement  of  rail- 
way funds. 

With  such  uniform  judicial  condemnation  of  the 
principle  upon  which  all  pooling  combinations  are 
founded ;  with  such  a  marked  care  on  the  part  of  the 
railways  to  keep  their  agreements  from  the  scrutiny 
of  the  courts ;  and  with  so  universal  a  condemnation  of 
every  feature  and  method  of  the  pools  that  has  been 
legally  tested,  is  not  every  consideration  of  public  in- 
terest and  welfare  that  has  been  urged  against  this 
practice  fully  sustained  by  unquestionable  authority? 
What  an  absolute  and  irreconcilable  conflict  there  is 
between  pooling  and  the  principles  of  law  may  be  seen 
from  the  fact,  that  a  thorough  review  of  the  case  by  an 
able  writer,  who  seems  personally  favorable  to  the  idea 
of  pooling  combinations,  leads  him  to  declare  that,  in 
a  legal  point  of  view,  "all  of  them  are  illegal,  criminal 
conspiracies  to  suppress  comj^etition  and  establish  mo- 
nopolies."*    But  apart  from  these  authoritative  decla- 


*  In  the  above  argument  on  the  legal  aspects  of  pooling,  the  ■writer  has 
drawn  largely  on  the  citation  of  authorities  and  the  application  of  them 
in  the  case  of  the  railway  pools,  given  in  a  very  able  and  exhaustive 
pajjer  by  Mr.  Adelbert  Hamilton,  published  in  connection  with  his  report 
of  tlie  Denver  and  New  Orleans  r«.  Denver  and  Rio  Grande  case,  and 
afterwards  revised  by  him  for  the  Chicago  Tribune.  Mr.  Hamilton's  ex- 
amination of  the  subject  leads  him  to  express  his  conclusion  on  the  il- 
legality of  pools  in  the  following  strong  terms:  "There  is  but  one  con- 
clusion to  be  drawn  from  tlie  study  of  the  law  on  the  railway  pools. 
That  is  that  they  are  unlawful.  Tliore  is  no  difference  in  principle  or 
reason  between  railway  j^ools  and  pools  of  salt  manufacturers,  coal  miners, 
or  canal  boatmen.  All  of  tliem  are  illegal,  criminal  conspiracies  to  sup- 
press competition  and  to  establish  monoijolies.  They  are  instruments  of 
robbery  and  extortion.  They  belong  in  the  same  category  of  crime  as  a 
'  corner.'  There  is  no  difference  between  a  corner  in  brcadstuffs  and  a 
corner  in  the  railways  that  carry  the  brcadstuffs,  except  that  the  latter  is 


The  Pooling  Policy,  247 

rations  of  the  illegality  of  pooling  agreements,  it  is 
plain  that  there  is  nothing  in  common  between  a  sys- 
tem of  laws  designed  to  foster  independent  trade,  and 
to  protect  the  weak  members  of  society  against  the 
strong,  and  a  policy  which  combines  powerful  corpora- 
tions created  by  the  state  into  an  organization  mightier 
than  the  state  itself;  which  directs  the  currents  of  trade, 
and  fixes  the  price  of  services  and  commodities  through- 
out the  nation.  If  there  had  never  been  a  word  uttered 
from  the  bench  on  the  public  character  of  combinations 
to  suppress  competition  and  erect  barriers  between 
producers  and  consumers,  they  w^ould  still  be  evident- 
ly opposed  to  the  public  welfare,  and  at  ^va^  with  the 
enlightened  policy  of  the  law.  Their  growth  in  the 
last  eight  years,  in  spite  of  the  decisive  and  universal 
condemnation  of  the  courts,  excites  wonder  at  the  blind- 
ness of  the  public,  and  its  supineness  in  protecting  its 
rights,  as  well  as  at  the  utter  disregard  of  public  policy 
and  law  by  railway  managers.  It  w-as  forcibly  de- 
clared, during  the  Congressional  debates  on  the  sulgect 
of  railway  regulation  during  the  past  winter,  that  the 
law  forbids  the  combination  of  a  few  comparatively 
poor  and  insignificant  canal   boatmen  to  sustain  their 

infinitely  more  pernicious  and  dangerous  to  the  welfare  of  the  people,  be- 
cause it  is  the  greater  and  is  at  present  almost  permanent."  Yet  Mr. 
Hamilton's  personal  toleration  for  the  idea  of  pooling  is  shown  by  the 
fact  that,  after  this  powerful  denunciation  of  the  illegality  of  pools,  he  ex- 
presses the  opinion  that  they  should  be  recognized  and  enforced  by  law  ! 
He  founds  this  grave  non  sequitur  upon  the  mistaken  2)rcmise  tliat  "  every 
abuse,  every  evil  in  railway  management,  has  its  root  in  competition."  If 
this  were  so  the  outlook  for  the  public  welfare  would  be  bad  indeed.  A 
better  judgment  of  the  case  can  be  formed  by  recognizing  the  fact,  which 
this  work  attempts  to  make  plain,  that  all  these  al)uses  and  evils  arise 
from  imperfect  competition,  and  from  the  efforts  of  railway  policy  to  sus- 
pend even  the  partial  effects  of  that  great  remedial  influence. 


24:8  The  Hallways  and  the  Bepxiblic. 

rates,  but  winks  at  exactly  the  same  practice  by  the 
great  and  powerful  railway  corporations.  The  law 
makes  no  such  discrimination,  and  if  this  question  were 
brought  before  impartial  and  independent  courts,  the 
rulings  already  referred  to  show  that  ^vhatever  power 
the  courts  possess  would  be  brought  to  bear  against 
these  combinations.  Yet  the  practical  effect  is  that, 
while  the  smaller  combinations  have  been  forbidden, 
and  the  details  of  the  greater  ones  condemnetl,  the 
power  of  the  latter  is  such  that  they  continue  their 
operations  without  regard  to  law.  A  great  public 
danger  is  disclosed  in  the  ability  of  these  immense  cor- 
porations to  nullify  the  principles  of  equity  enunciated 
by  the  courts  for  centuries.  The  public  welfare  de- 
mands that  this  defiance  of  the  fundamental  law  shall 
stojx 

No  less  than  the  public  welfare,  the  true  interests  of 
the  railways  demand  that  they  shall  cease  to  offend 
popular  opinion  and  to  alienate  popular  support,  by 
maintainimr  these  combinations  a2;ainst  the  freedom  of 
trade.  No  f)i"operty  is  more  deeply  interested  in  the 
favor  of  the  public  or  in  the  stability  of  order  than  the 
railways.  This  country  has  already  learned  by  exj^eri- 
ence  that  its  entire  railway  system  can  be  taken  pos- 
session of  by  an  organization  of  dissatisfied  employees, 
and  either  be  operated  by  them  for  weeks  at  a  time, 
or  uttei'ly  destroyed,  as  the  moderation  or  desperation 
of  the  laboring  element  may  dictate.  The  only  safe- 
guard against  a  repetition  of  the  experiences  of  1877, 
with  perhaps  still  more  disastrous results,lies  in  teaching 
the  laboring  classes  that  the  operations  of  the  railways 
contribute  to  their  employment  and  sustenance.  All 
thinking  men  know  that  the  stoppage  of  railway  opera- 


The  Pooling  Policy.  249 

tioiis,  or  the  destruction  of  railway  propert}^,  would  be 
an  infinite  calamity,  of  Avliich  the  direct  results  would 
fall  upon  labor.  But  hungry  and  idle  working  men 
with  starving  children  do  not  always  listen  to  the  calm 
counsels  of  reason.  The  condition  of  trade  and  in- 
dustry durino;  last  year  should  suo-o-est  the  iri'avest 
reflections  to  all  classes  of  business  men,  and  more 
especially  to  the  railway  interests,  which  will  be  the 
first  to  suffer  by  disorder  or  revolt.  Unemployed  labor 
has  been  restless  under  the  pressure  of  idleness  and 
want.  The  apostles  of  anarchy  have  been  openly  sow- 
ing the  seed  of  revolution  and  destruction.  They  have 
found  their  greatest  support  iu  the  hardships  produced 
by  the  existing  constitution  of  trade.  With  grain  so 
abundant  and  cheap  in  the  great  agricultural  states 
that  it  has  been  burned  for  fuel;  with  all  classes  of 
manufactured  goods  produced  in  such  excessive  supply 
that  the  factories  have  had  to  shut  down,  the  fiirmers 
of  the  AYest  have  been  unable  to  buy  goods,  and  the 
mechanics  of  the  East  have  sufi^ered  for  the  lack  of 
food.  Writers  on  economic  subjects  tell  us  of  over- 
production ;  but  wdien,  in  the  midst  of  universal  over- 
production, or,  in  other  words,  excessive  abundance,  we 
find  the  presence  of  grim  want,  the  only  explanation 
left  is  in  the  presence  of  abnormal  restraints  upon 
the  exchange  of  products.  When  too  much  grain,  too 
much  meat,  too  much  iron,  too  much  cloth,  and  too 
much  coal  is  produced  in  the  country,  the  fact  that 
labor  suffers  from  the  lack  of  grain,  meat,  cloth,  and 
coal,  proves  that  there  are  barriers  to  trade  between 
the  producers. 

The  most  prominent  and  most  universal  of  these  bar- 
riers are  the  raihvay  pools.     The  combinations  ^vhich 


250  The  Railways  and  the  Republic. 

are  formed  with  the  purpose  of  raising  the  cost  of  ex- 
chanc-infr  the  o-rain  of  the  West  for  the  efoocls  of  the 
East  above  the  level  that  would  be  reached  by  the 
workings  of  competition  ;  which  restrict  the  production 
of  fuel  and  sustain  artificial  prices  to  consumers,  when 
thousands  are  freezing ;  which  build  up  mono2:)olies  iu 
the  agents  of  light  and  heat;  and  which  are  every- 
where imposing  restrictions  ujjon  trade  which  create 
the  paradox  of  general  want  in  the  presence  of  uni- 
versal abundance,  are  offering  the  greatest  provocation 
to  violent  and  dangerous  attacks  upon  the  railway  in- 
terest. Whether  the  popular  feeling  is  provoked  to  ex- 
press itself  in  adverse  and  extreme  legislation,  or  wheth- 
er the  work  of  combination  is  perpetuated  and  extended 
until  monopolies  like  the  petroleum  and  coal  pools  be- 
come universal,  and  an  exasperated  and  maddened 
proletariat  tears  the  whole  system  down  in  general 
ruin,  the  evils  of  that  polic}^  will,  if  continued,  eventu- 
ally bring  a  revulsion  beside  which  its  questionable 
pecuniary  gains  will  be  as  a  mole-hill  on  the  side  of 
Himalaya.  Not  only  in  the  interest  of  public  justice 
and  free  competition  should  the  railways  abandon  their 
present  work  of  suspending  competition  and  building 
up  monopolies;  but  the  instinct  of  self-preservation 
should  lead  them  to  restore  the  free  and  unrestricted 
working'  of  the  lesjitimate  influences  of  trade.  The 
abandonment  or  continuance  of  the  pooling  policy,  as 
sketched  in  the  preceding  pages,  may  involve  the  safety 
or  ruin  of  the  entire  railway  interest  of  the  nation. 


CHAPTER  VII. 

THE    FICTITIOrS    ELEMENT    IX   RAILWAY   POLICY. 

The  public  representatives  and  apologists  of  the 
railways  have  experienced  a  remarkable  change  of 
views  since  the  agitation  for  railway  reform  began. 
The  failure  of  voluntary  combinations  to  destroy  or 
control  competition  among  the  roads  has  suggested  a 
demand  for  legislation  to  accomplish  this  end.  A  few 
years  ago  the  advocates  of  these  corporations  unani- 
mously insisted  that  legislation  must  not  meddle  with 
their  business.  The  subject  was  so  intricate,  the  traf- 
fic involved  so  vast  and  varied,  and  the  business  prin- 
ciples which  controlled  the  railways  so  just  and  infal- 
lible, that  the  government  must  not,  as  one  enthusiastic 
Congressman  put  it  last  winter, "  lay  the  mailed  hand  of 
political  power  upon  one  of  the  most  complicated  and 
sensitive  business  adjustments  of  modern  times."  Until 
one  year  ago,  this  principle  of  non-interference  had  the 
unanimous  support  of  the  spokesmen  of  the  railways.  It 
is  somewhat  startling,  therefore,  to  find  them  now,  one 
after  another,  joining  in  the  demand  that,  after  all, 
legislation  shall  interfere  with  the  railway  business, 
shall  legalize  the  pools,  enforce  their  decrees,  and  so 
lend  its  aid  to  the  suppression  of  free  competition. 

This  change  of  policy  is  a  result  of  experience  in  ad- 
ministering the  pools.  It  has  become  plain  that  the 
laws  of  trade  will  revenge  themselves,  that   competi- 


252  The  Railways  and  the  Re-public. 

tion  will  spring  up,  despite  combinations  to  suppress 
it,  and  that  the  most  successful  pools  lead  to  the 
building  of  new  parallel  roads  and  to  violent  and  ruin- 
ous conflicts.  But  all  this  has  not  convinced  the  rail- 
way magnates  of  the  wisdom  of  abandoning  such  de- 
vices. They  choose  rather  to  demand  that  legislation 
shall  abandon  its  fundamental  principle  of  protecting 
free  competition,  and  support  the  railways  in  suppress- 
m<y  that  influence,  and  in  maintainincr  whatever  arbi- 
trary  rates  the  railway  combination  shall  decree.  Their 
reasoning  seems  to  be  founded  on  the  assumptions  that 
the  policy  of  the  corporations  is  infallible ;  that  the 
practice  of  pooling  is  the  grand  specific  for  all  evils  in 
the  railway  system;  and  that  to  preserve  the  public 
and  the  corporations  alike  from  "  unlicensed  competi- 
tion," to  use  the  phrase  of  a  prominent  advocate  of  the 
corporations,  the  state  must  uphold  combinations  by 
law,  and  subject  the  business  of  the  country  to  the 
railways,  united  in  that  grand  federation  of  which  Mr. 
Adams  is  the  leading  apostle.  This  principle,  tenta- 
tively urged  before  the  New  York  Eailway  Commission 
last  winter,  was  more  maturely  and  definitely  presented 
to  the  Cullom  Committee  last  summer.  It  is,  in  the 
words  of  Mr.  Fink,  that  "  Kailroads  should  he  compelled 
by  law  to  oiganize  themselves  into  associations  for  this 
purpose,"  i.  ^.,  the  purpose  of  establishing  rates  by  pool- 
ing organizations  such  as  Mr.  Fink  represented ;  and, 
while  "not  prepared  to  recommend  a  law"  to  compel 
the  corporations,  after  they  had  entered  upon  an  agree- 
ment in  regard  to  rates,  to  keep  it,  he  was  "  quite  cer- 
tain that  such  a  law  should  be  drafted  and  passed  by 
the  legislatures  or  by  Congress."  The  same  idea  was  ex- 
plained in  greater  detail  by  Messrs.  Geo.  R  Blauchard, 


The  Fictitious  Element  in  Railvmy  Policy.        253 

W.  K.  Ackerman,  and  J.  II.  Devereux,  in  their  argu- 
ments at  various  sittings  of  the  Senate  Committee. 
They  attributed  all  the  evils  of  the  railway  system  to 
the  ravages  of  competition,  drew  a  moving  picture  of 
the  inability  of  the  railways  to  earn  dividends,  and  in- 
ferred that  while  competition  might  still  be  left  free 
on  the  lakes,  rivers,  and  canals,  it  must  be  restrained 
by  law  in  railway  traffic*  The  railway  managers  were, 
he  acknowledged,  powerless  to  curb  this  evil,  "from  an 
inherent  weakness  and  defect  in  the  disjointed  and  un- 
guarded system  of  railway  construction,"  which  permits 
every  one  to  build  a  railroad  who  has  the  capital, 
whether  it  suits  the  older  corporations  or  not.  In  or- 
der to  remedy  these  dangers  to  the  railways,  the  only 
interest,  as  Mr.  Devereux  appears  to  think,  ^vhich  re- 
quires the  protection  of  the  state,  he  proposed  legisla- 
tion as  follows:  first,  to  restrict  the  building  of  new 
railroads,  except  upon  the  consent  of  a  state  tribunal  or 
commission,  which  must,  of  course,  be  organized  in  the 
interest  of  the  existing  railways;  and,  second,  to  sanc- 
tion the  combination  of  i-ailways  to  establish  rates,  to 
forbid  an}^  withdrawal  from  such  an  agreement  once 
made,  unless  upon  thirty  days'  notice,  and  to  provide 
that  "  any  person  or  persons  who  shall  disregard  such 
published  rates,  by  allowing  or  conniving  at  any  form 
of  concession  from  such  published  rates,  through  di-aw- 
backs,  commissions,  or  by  any  form  of  subterfuge  what- 
soevei',  shall.,  vjyon  conviction,  he  lyunished  hy  fine,  or  hn- 

*  "But  a  competition  that  is  wholly  unrestrained  will  ultimately  work 
in  these  matters  a  harvest  of  general  disaster.  Liberty  is  not  license; 
competition  may  not  be  limitless.  Competition  should  not  be  a  free- 
booter in  this  matter,  which  enters  into  every  material  interest  of  the 
land,  and  affects  the  welfare  of  all  people.  Nor  is  competition  to  be  per- 
mitted to  run  amuck  in  the  destruction  of  vested  capital." 


254  The  Railways  and  the  Re-public. 

prisonment^  or  lotli.  This  being  the  plan  which  the 
leading  spokesmen  of  the  railways  propose  for  binding 
the  commerce  of  the  country  to  the  chariots  of  the  rail- 
way combinations,  it  is  unnecessary  to  quote  from 
men  of  less  note. 

Thus  a  wonderful  and  sudden  transformation  seems 
to  have  taken  place,  in  the  principles  by  which  these 
corporations  wish  the  state  to  be  guided.  Five  years 
ao-o,  Mr.  Gr.  T.  Curtis  held  that  neither  Congress  or  the 
leo-islatures  can  "  dictate  the  terms  on  whicii  they  [the 
railways]  can  be  used,  or  prescribe  the  contracts  which 
may  be  made  with  customers."  INIr.  Fink  asserted  that 
"the  state  cannot  regulate  tariffs,"  and  that  "neither 
Congress  nor  legislatures  can  fix  a  limit  as  to  charges." 
As  lono-  as  the  reirulation  or  limitation  was  to  be  in  the 
interest  of  the  people,  all  such  governmental  interfer- 
ence was  unconstitutional  and  wrong.  Those  who 
urged  such  things  were  guilty  of  socialistic  or  com- 
munistic principles.  But  when  the  power  of  the  gov- 
ernment is  invoked  for  the  benefit  of  the  railways,  the 
constitutional  principles  of  their  advocates  are  reversed. 
The  interference  which  would  be  intolerable,  if  made 
to  protect  commerce  against  injustice  or  favoritism  on 
the  part  of  the  railways,  is  invited  for  the  protection 
of  the  railways  against  themselves.  To  limit  charges 
in  the  interest  of  the  people  is  injustice  and  confisca- 
tion, but  to  limit  them  in  the  interest  of  the  railways 
is  benign  and  commendable.  The  public  must  trust  to 
competition  for  protection ;  but  to  protect  the  railways 
from  throwing  away  their  own  money,  by  carrying 
freio-ht  too  low,  the  building  of  new  railways  must  be 
forbidden,  and  the  evil  of  unrestrained  competition  must 
be  abolished.     Competition  will  answer  for  the  public 


The  Fictitious  Element  in  Railway  Policy.        255 

needs  as  long  as  the  railways  are  able,  by  combiuation, 
to  suspend  and  check  it ;  but  when  it  endangers  their 
earnings  the  law  must  make  such  competition  a  crim- 
inal offence,  punishable  b}^  fine  and  imprisonment.  The 
technical  knowledge  and  fiiirness  of  the  raihvay  man- 
airers,  and  their  "  enlis-htened  selfishness,"  are  sufficient 
safeguards  for  commerce ;  but  the  ruin  witli  which 
they  threaten  their  own  interests  is  such  that  they  ap- 
peal to  the  law  to  save  them  from  it.  The  very  meth- 
ods which  are  condemned  when  proposed  for  the  j^ub- 
lic  protection,  are  urged  in  an  exaggerated  form  for  the 
furthering  of  railway  combination.  The  long-and-short 
haul  provision  of  the  Reagan  bill,  and  the  requirement 
that  rates  shall  be  posted,  were  condemned  as  imprac- 
ticable because  the}^  would  prevent  competition.  But 
it  is  now  proposed  that  the  state  shall  join  the  railway 
in  a  far  more  direct  attack  on  competition,  while  a 
proposition  to  enforce  the  posting  of  rates  with  sixfold 
more  stringency,  when  urged  by  a  raihvay  president, 
becomes  wise,  conservative,  and  statesmanlike.  The  in- 
tricacy of  the  subject  certainly  seems  appalling,  when 
we  listen  to  the  authoritative  expounders  of  raihvay 
policy,  and  leai'n  that  every  rule  proposed  in  tlie  in- 
terest of  shippers  and  of  the  public  will  work  irretriev- 
able injury;  while  similar  or  more  rigid  rules  and 
restrictions,  designed  to  hamper  the  freedom  of  trans- 
portation, to  prevent  competition,  and  to  aid  tlie  rail- 
way managers  in  upholding  charges,  are  safe  and  bene- 
ficial. Such  contradictory  arguments  amount  to  a 
practical  avowal  that  legislation  has  corporate  aggran- 
disement for  its  chief  end,  to  the  disregard  of  public 
rights  and  interests.  "We  are  told  that  competition 
must  not  be  protected  by  the  law,  when  the  railways 


256  The  Hallways  and  the  Republic. 

obstruct  it;  but  that  when  it  breaks  its  fetters  and 
revenges  itself  upon  the  corporations  which  have  tried 
to  suppress  it,  the  law  must  restrain  it.  What  does 
this  mean,  but  that  the  advocates  of  these  corporations 
regard  the  interests  of  the  railways  as  paramount,  and 
the  interests  of  the  public  as  nothing  ? 

AVhat  is  the  cause  of  this  change  of  policy  in  rail- 
way statesmanship  ?  To  understand  it  clearly,  we  must 
examine  it  more  in  detail  than  it  would  otherwise  de- 
serve. The  argument  advanced  by  Mr.  Devereux  at 
length,  and  urged  by  Mr.  Fink,  Mr.  Blanchard,  and 
numerous  other  authorities  of  the  railway  school,  rests 
upon  two  leading  assertions : 

First,  that  unlicensed  competition  is  the  source  of 
discriminations  which  injure  the  public,  and  that  these 
can  be  prevented  by  combinations  of  the  railways  to 
maintain  uniform  rates. 

Second,  that  the  railways  are  impoverished  and 
ruined  by  competition,  and  ought  to  be  restrained  by 
law  from  thus  wasting  their  resources. 

From  these  premises  the  inference  is,  that  relief  for 
the  public  and  the  railways  alike  is  to  be  obtained  by 
laws  which  shall  forbid  the  railways  to  cut  rates,  and 
shall  restrict  them  to  the  tariff  which  shall  be  prescribed 
by  the  pools. 

The  assertion  that  discriminations  are  the  result  of 
competition  is  an  error  which  is  fully  refuted  in  other 
chapters.  It  is  enough  here  emphatically  to  deny  that 
competition  is  their  cause,  and  to  add  that,  if  it  were 
so,  the  proposition  to  remedy  them  by  combination 
would  be  absurd,  since  the  most  permanent  and  suc- 
cessful railroad  combinations  that  have  been  known 
have  inflicted  the  most  persistent  and  unjustifiable  dis- 
criminations. 


The  Fictitious  Element  in  Railway  Policy.        257 

The  second  assertion  in  question  has  a  better  founda- 
tion, and  discloses  the  real  cause  of  the  desire  to  legalize 
combinations  against  the  laws  of  trade.  The  railways 
have  not  earned  enough ;  their  failure  is  ascribed  to 
competition ;  pooling  contracts  are  looked  to  as  an 
artificial  support  for  earnings.  Mr.  Fink  said  before 
the  Senate  Committee :  "  There  is  very  little  complaint 
of  excessive  railway  charges.  Indeed,  many  railroads 
have  been  driven  into  bankruptcy,  because  their  charges 
have  been  too  low  to  pay  expenses;"  and  he  inferred 
the  necessity  of  an  artificial  maintenance  of  rates.  Mr. 
Blanchard  "  compared  the  ruin  which  has  overtaken 
investors  in  railway  property  with  the  prosperity  which 
has  attended  the  farmers."  Mr.  Devereux  drew  a  mov- 
ing picture  of  the  inability  of  his  own  road  to  earn  fair 
dividends,  and  ascribed  it  to  the  steady  reduction  of 
rates  through  unbridled  competition.  This  brings  us 
to  consider  whether  the  average  rates  of  the  i-ailways 
are  unprofitable,  and  whether  they,  by  rivalry,  have 
reduced  themselves  to  a  condition  that  requires  the 
fostering  care  of  the  nation,  at  the  expense  of  other  in- 
terests. The  prima -facie  case  on  the  part  of  the  rail- 
ways was  made  out  by  Mr.  Fink  in  his  testimony  be- 
fore the  Senate  Committee  of  1883.  He  said  that,  in 
the  previous  year,  the  capitalization  of  the  railways 
was  about  $7,000,000,000  and  their  net  receipts  about 
$300,000,000,  of  which  the  stockholders  received  about 
$100,000,000,  or  3  per  cent,  on  their  stock.  Applying 
his  form  of  statement,  but  substituting  the  later  figures 
for  1884,  we  find  that  the  total  of  stock  and  funded 
debt  of  the  railways  at  the  close  of  that  year  Avas 
$7,431,732,450.  The  net  traffic  earnings  for  the  year 
were  $268,106,258,  or  3.52  per  cent,  on  the  capitaliza- 

17 


258  The  Railways  and  the  BejpuUic. 

tioD.  Of  these  earnings,  $176,694,302  were  paid  in 
interest  on  $3,669,115,772  of  funded  debt,  or  4.51  per 
cent.,  while  the  amount  paid  ont  in  dividends  was 
$93,244,835,  or  2.48  per  cent,  upon  the  stock.  These  fig- 
ures, after  allowing  for  the  fact  that  they  represent  the 
traffic  of  an  unprosperous  yeai',  do  not  indicate  exorbi- 
tant earnino;s.  But  whether  an  interest  that  obtained 
31  per  cent,  on  its  total  capitalization,  during  a  period 
of  general  dej^ression  and  bankruptcy,  needs  especial 
aid  from  the  state  may  be  considered  hereafter.  It 
must  be  conceded  that  these  a2'2;re2;ates  do  not  show 
the  railways  as  a  whole  to  be  excessively  remunerative. 
But  the  cpiestion  that  first  arises  is  whether  the  bonds 
and  stock  on  which  these  moderate  returns  are  shown 
represent  actual  and  hona-fide  investments,  or  are  in 
any  degree  fictitious.  In  other  words,  the  argument  in 
favor  of  artificially  maintaining  rates,  because  profits 
are  low,  brings  up  the  subject  of  over-capitalization  or 
stock-^vateriug. 

Does  the  capital  on  which  Mr.  Fink  shows  such  very 
modest  profits  represent  money  actually  invested  in 
railways,  or  does  it  comprise  a  large  share  of  alleged 
securities  which  represent  nothing  but  paper  ?  No  man 
has,  to  my  knowledge,  seriously  asserted  that  the  en- 
tire stock  and  debt  of  the  railways  of  the  United  States 
represent  money  actually  invested.  The  nearest  ap- 
proach to  such  a  claim  was  in  Mr.  Fink's  remarks  be- 
fore the  New  York  commission  last  winter,  which  he 
introduced  by  saying,  "There  is  a  great  hue  and  cry 
about  watering  stock,"  adding  that,  as  to  the  New  York 
roads,  with  which  the  commission  was  then  concerned, 
"there  cannot  be  much  water  in  that  estimate  of  cost." 
Yet  the  leading  railways  of  New  York  are  notorious 


The  Fictitious  Element  in  Eaihoay  Policy.        259 

and  promiuent  instances  of  the  practice  of  stock-water- 
ing. The  New  York  Central  and  Hudson  E,iver  Rail- 
road, the  most  prominent  of  tbem,  has  a  capital  stock  of 
$89,428,300,  and  a  debt  of  $56,497,223,  making,  with 
mortgages  of  $109,320  upon  its  real  estate,  an  ag- 
gregate capitalization  of  $146,034,853.  The  fictitious 
securities  included  in  this  total,  as  was  shown  by  the 
New  York  legislative  investigating  committee  in  1880, 
amount  to  a  large  percentage  of  the  W'hole,  and  there 
is  no  more  conspicuous  example  of  capital  inflated  by 
stock  dividends,  under  the  pretence  of  consolidation. 
The  stocks  of  the  several  roads  which  were  united  to 
form  the  New  York  Central  were  increased  in  the  con- 
solidation by  $8,894,560,  or  more  than  one  third  their 
original  capitalization,  w^hich  the  legislative  committee 
declares  to  have  been  "  so  much  water  or  fictitious  capi- 
tal added  to  the  road ;"  but  this  is  reduced  to  common- 
place, by  contrast  w^ith  the  magnificent  creation  of 
financial  values  by  the  printing-press,  when  the  con- 
solidation of  the  New  York  Central  and  Hudson  River 
Railroads  took  place  in  1869,  and  a  capitalization  of 
$90,000,000  w^as  effected,  which,  as  the  secretary  of  that 
corporation  testified  before  the  committee,  "was  "  about 
twice  the  original  capital "  of  the  two  companies.  The 
fictitious  addition  is  stated  by  the  committee  to  reach 
$53,507,060,  which,  considering  that  the  $8,894,000  of 
fictitious  capital  in  the  New  York  Central  underwent 
the  subsequent  inflation  of  27  per  cent,  on  the  second 
consolidation,  is  about  $2,000,000  within  the  mark. 
Without  inrpiiring  into  the  legitimacy  of  an  increase 
of  nearly  $17,000,000,  which  has  taken  place  in  the 
capitalization  of  this  company  since  the  investigation 
by  the  legislative  committee,  it  appears  from  the  figures 


260  The  Hailvjays  and  the  Repuhlic. 

of  the  committee  that,  of  the  total  capital  of  the  New 
York  Central  and  Hudson  River  Railroad,  includinsr 
stock  and  bonds,  36  per  cent,  is  "  water,"  while  of  the 
stock  whose  profits  are  under  discussion  the  fictitious 
addition  is  59  per  cent,  of  its  present  total,  or  about 
145  per  cent,  upon  the  original  investment. 

This  remarkable  manufacture  of  capital  is  rivalled,  if 
not  surpassed,  in  the  well-known  history  of  the  Erie 
Railway.  The  remarkable  story  of  successive  issues  of 
securities,  representing  little  or  no  money  or  property, 
has  been  so  gra])hically  told  by  Mr.  C.  F.  Adams  that 
it  need  not  be  repeated  here.  It  is  suflicient  for  the 
present  purpose  to  cite  the  conclusion  of  the  New 
York  legislative  committee,  from  the  testimony  of  ex- 
perts, that  the  property  of  the  company,  caj^italized  at 
$155,000,000,*  could  be  replaced  for  $65,000,000 ;  that 
the  most  moderate  estimate  of  the  actual  "water"  in 
its  securities  was  $53,163,881,  not  including  a  loss  of 
$10,800,000  by  discounts  in  the  sale  of  $25,000,000  of 
bonds.  The  capital  stock  of  the  company  is  $85,000,000, 
representing,  according  to  this  most  moderate  view, 
$22,000,000  of  actual  investment;  while  others  esti- 
mate that  the  bonded  securities  of  the  company  alone 
represent  the  entire  amount  invested  in  the  property, 
and  $10,000,000  more ;  so  that  the  entire  share  capital 
and  part  of  the  bonds  are  a  stupendous  mixture  of 
wind  and  water.f     These  two  leading  corporations  of 

*  This  was  the  caiiitalization  in  1880,  and  lias  since  been  increased 
to  $100,601,385  by  tlie  issue  of  coUateral  trust  bonds. 

t"It  matters  little  for  the  purposes  of  this  report  ■whether  fifty  or 
seventy  millions,  representing  nothing  save  mismanagement,  prodigality, 
and  pilfering,  have  been  injected  into  the  capitalization  of  this  road,  and 
are  now  seeking  to  drain  interest  and  dividends  from  the  commerce  of 
the  countiy.     In  either  case  the  wrong  is  equally  glaring  and  the  de- 


The  Fictitious  Element  in  Railway  Policy.        261 

New  York  are  among  the  most  important  members  of 
Mr.  Fink's  organization ;  together  they  issue  more  than 
$300,000,000  of  the  securities  in  which  the  investors 
of  the  country  are  interested.  In  view  of  the  fact  that 
of  the  $300,000,000  not  less  than  $116,000,000  are 
based  solely  on  the  fiat  of  the  corporations,  represent- 
ing DO  property  whatever,  and  that,  of  the  $175,000,000 
of  capital  stock  of  the  two  companies,  66  per  cent,  is  fic- 
titious and  not  more  than  34  per  cent,  is  genuine,  it 
appears  that  Mr.  Fink's  assertion  that  "  there  cannot 
be  much  water"  in  the  capital  of  these  I'oads  is  not 
founded  on  a  careful  study  of  the  facts. 

In  extending  the  inquiry  to  other  railways  it  is  not 
always  easy  to  determine  the  exact  amount  of  inflation 
in  the  capital.  The  great  competitor  of  the  two  New 
York  corporations,  the  Pennsylvania  Railroad,  is,  apart 
from  one  or  two  stock  dividends,  supposed,  to  be  free 
from  the  burden  of  securities  issued  without  a  fjiir 
foundation  in  property.  But  the  total  stock  and  debt 
of  this  company,  as  represented  to  the  public,  are  in- 
flated in  another  way.  The  cost  of  the  construction 
and  equipment  of  its  line  is  stated  at  $75,000,000, 
which,  when  compared  with  the  $160,000,000,  "estate 
of  Erie  Railway  and  construction  account,"  and  the 
$114,800,000  for  "roads  and  equipment"  in  the  bal- 
ance  sheets  of  tlie  New  York  Centra],  seems  reasona- 
ble, and  suggests  a  stock  comparatively  free  from 
"water."  But  the  difi'erence  between  the  cost  of  the 
line  and  the  total  capitalization  of  $156,870,453  re- 
quires some  explanation.  We  find  it  in  the  fact  that 
the  $81,000,000  of  stock  in  excess  of  the  cost  of  the 

mand  for  a  remedy  equally  imperative."' — Jiepoi't  of  New  York  Legislative 
Committee,  p.  18. 


262  The  Bailways  and  the  Itejpublic. 

road  is  balanced,  together  with  a  portion  of  the  sur- 
plus, by  an  investment  of  $96,000,000  in  the  stocks 
and  bonds  of  other  corporations  having  a  par  value  of 
$128,000,000.  This  practice  of  doubling  the  stocks  or 
bonds  which  a  railway  corporation  may  purchase,  by 
an  additional  issue  of  its  own  securities,  is  common 
enough,  but  has  hardly  been  carried  elsewhere  to  such 
a  magnificent  extent. 

Whether  or  not  it  is  proper,  as  a  matter  of  account 
in  the  business,  that  a  railway's  capitalization  should 
represent  anything  but  construction  and  equipment,  it 
is  certain  that,  for  the  purpose  of  this  inquir}",  we  should 
take  nothing  else  into  consideration  as  the  basis  of  earn- 
ings. The  low  earnings  of  the  I'ailways,  in  proportion 
to  their  cost,  is  advanced  as  a  reason  for  askins:  leo;is- 
lative  aid  in  the  artificial  maintenance  of  rates.  Yet 
here  the  total  of  railway  capitalization  is  swelled  by 
counting  the  stocks  of  certain  corporations  twice ;  the 
stocks  and  bonds  which  the  Pennsylvania  Kailroad 
owns,  comprised  in  the  grand  total  of  the  railway  cap- 
ital, being  reported  by  each  company  which  issues 
them,  and  then  represented  again  by  $81,000,000  of 
stock  which  it  has  issued,  not  as  a  railway  buikler  but 
as  an  investor.  It  is  plain  that  if  this  class  of  double 
entry  is  practised  by  many  companies,  on  any  such 
scale,  it  will  account  for  a  very  large  proportion  of  the 
total  capital  of  the  railways ;  and  if  the  earnings  are 
not  also  counted  twice,  the  apparent  percentage  of  net 
earnings  on  that  part  of  the  capital  would  be  just  half 
the  real  percentage."    Thus  the  Pennsylvania  Railroad 

*  Suppose  a  railway  "whose  whole  capital  of  $10,000,000,  earning  10 
per  cent,  net,  or  $1,000,000  annually,  is  bought  by  another  company, 
which  issues  its  own  stock,  representing  this  investment,  to  the  amount 


The  Fictitious  Element  in  Baihoay  Policy.        2G3 

earued,  in  1884,  $12,621,000,  or  apparently  about  8 
per  cent,  on  the  capital  stock.  But  the  cost  of  the 
roads  and  equipment  which  made  these  earnings  was 
but  $75,000,000;  $81,000,000  of  the  capital  being  in- 
vested in  other  roads.  On  this  $75,000,000  the  net 
earnings  were  17  per  cent.,  or  more  than  twice  the  rate 
acknowledged  by  the  company.* 

Such  a  device  as  this  may  easily  be  employed  to  con- 
ceal large  profits,  and  for  this  purpose  is  the  precise 
equivalent,  in  its  effect  upon  the  published  statements, 
of  fictitious  issues  of  stock,  or  "  watering."  We  may 
remark,  in  dismissing  the  subject  of  inflation  in  the 
stock  of  the  trunk  lines,  that  the  Baltimore  and  Ohio 
Railroad,  with  its  very  reasonable  capital  of  $19,792,- 
000  and  bonded  debt  of  $23,959,000,  stands  in  strik- 
ing contrast  to  the  inflated  book-keeping  capital  of  its 
competitors,  however  closely  allied  with  them  it  may 
be  in  other  practices  no  less  questionable.  But  the 
inflation  of  capital  has  been  practised  on  a  large  scale 
by  roads  in  other  lines  of  traffic  ;  the  most  conspicuous 
case  being  that  of  the  anthracite  -  coal  roads,  several 
of  which  have  inflated  their  capitalization,  by  issuing 
stock  or  bonds  to  purchase  other  railwa3^s,  or  mining 
and  manufacturing  property,  at  an  excessive  valuation. 
The  history  of  the  anthracite  ■  coal  pool  is  reviewed 

of  $10,000,000.  There  is  now  $20,000,000  of  capital  against  this  prop- 
ertj',  and  the  net  earnings  of  $l]K000,000  annually  may  appear  as  5  per 
cent,  on  the  investment  instead  of  10  per  cent.,  as  they  really  arc. 

*  The  difference  between  the  actual  cost  of  railroads  and  tlieir  equip- 
ment in  the  United  States  and  their  aggregate  capitalization  is  esti- 
mated in  "Poor's  Manual"  at  .$700,000,000.  The  most  charitable  view 
is  that  the  difference  mainly  represents  such  investments  in  the  securities 
of  other  roads.  As  more  than  one  tenth  of  the  difference  is  accounted 
for  in  the  figures  of  the  Pennsylvania  Railroad,  the  presumption  is  not 
violent. 


26-i  The  Railways  and  the  Repiiblic. 

elsewhere;  but  it  is  pertinent  to  the  present  discus- 
sion to  point  out  that,  in  fourteen  years,  tlie  Reading 
Kailway  increased  its  debt  more  than  $100,000,000  by 
the  purchase  of  mining  properties  at  inflated  values ; 
that  the  same  company's  debt,  which,  in  many  ways, 
is  largely  fictitious,  includes  $25,568,000  of  deferred 
income  bonds  for  which  it  received  but  $7,670,000; 
that  out  of  the  $270,000,000  of  cai^ital  of  the  four 
anthracite  -  coal  roads,  the  cost  of  roads  and  equip- 
ment accounts  for  only  $114,000,000,  the  remaining 
$156,000,000  being  charged  to  investments  in  coal 
property,  in  the  stock  of  other  roads,  and  in  various  en- 
terprises, and  that  investigation  by  legislative  com- 
mittees has  proved  that  the  total  capitalization  of  rail- 
road and  mining  property  held  by  the  members  of  this 
combination  is  not  less  than  $500,000,000.  It  has 
often  been  asserted,  and  is  not,  I  believe,  denied,  that 
the  stocks  and  debts  of  these  railroads  are  fictitious  to 
the  full  extent  of  one  half  of  their  aggregate.  That 
the  vast  additional  capital  representing  mining  prop- 
erties, upon  which  they  have  united  to  extort  profits 
from  the  public,  is  inflated  in  an  equal  or  greater  pro- 
portion is  beyond  doubt.  But,  for  the  purpose  of  this 
discussion,  we  need  not  look  beyond  the  illegitimate 
value  in  the  caj^ital  stock  and  bonds  of  the  roads 
themselves. 

A  still  more  notorious  and  flagrant  example  of  stock 
inflation  is  that  of  the  Pacific  railroads.  The  public 
are  familiar  with  the  record  of  this  creation  of  stupen- 
dous wealth,  out  of  the  loan  of  a  government  subsidy 
and  the  gift  of  an  empire  in  land.  It  has  been  told 
by  Mr.  Charles  Francis  Adams,  in  detail  and  with  an 
authority  that  is  emphasized  by  his  present  position 


The  Fictitious  Element  in  Baihoay  Policy.        265 

at  the  Lead  of  one  of  the  companies.  The  story  of  the 
Construction  Company,  the  "  Credit  Mobilier,"  upon 
whose  stock,  the  investment  in  which  was  nominal,  the 
greater  portion  of  the  shares  and  debt  of  the  Union 
Pacific  Railway  was  distributed  as  dividends,  is  part  of 
the  record  of  national  politics.  It  is  also  well  known 
how  the  Central  Pacific  Railway  was  built.  A  com- 
pany of  capitalists,  whose  resources  at  the  beginning  of 
the  enterprise  were  $195,000,  with  the  aid  of  loans 
from  the  city  of  Sacramento  and  Placer  County  to  the 
extent  of  $550,000,  built  enough  road  to  draw  $848,- 
000  from  the  United  States  Treasury  as  the  subsidy 
for  the  first  section,  and  by  repeating  the  process  con- 
structed the  entire  road ;  with  which,  as  a  nucleus, 
they  have  now  gathered  a  total  capitalization  of  $139,- 
000,000.  Similar  illustrations  might  be  found  in  the 
financial  "  ballooning "  of  the  Northern  Pacific,  the 
Texas  Pacific,  and  the  Atlantic  and  Pacific;  but  an 
outline  of  the  history  of  the  two  older  corporations  is 
sufiScient  for  our  present  purpose.  Their  aggregate 
capital  is  $120,000,000 ;  their  funded  debt,  apart  from 
the  government  subsidy,  is  $136,000,000  ;  and  the  con- 
tribution of  the  United  States  to  their  construction 
was  $61,000,000,  in  the  form  of  a  loan,  on  which  less 
than  half  the  interest  has  been  repaid  l)y  the  compa- 
nies. Pg  is  well  known  that,  of  this  capitalization,  the 
stock  does  not  represent  a  dollar  of  actual  investment; 
that  a  large  jiortion  of  the  debt  was  pocketed  by  the 
constructors  of  the  roads  in  the  shape  of  contracts, 
which  they  made  with  themselves,  to  build  the  tracks 
at  two  or  three  times  the  legitimate  cost;  that  the 
roads  were  almost  if  not  wholly  paid  for  by  the  gov- 
ernment subsidy ;  and  that  of  the  $259,000,000  of  ad- 


266  The  Railways  and  the  BepuUic. 

clitional  stock  and  bonds  issued  upon  the  properties, 
an  estimate  that  one  third  represents  invested  cash 
will  be  too  liberal.  Let  us,  however,  assume  that  ratio, 
as  the  average  proportion  of  cash  paid  for  securities 
issued  in  the  work  of  railway  construction,  in  the  trans- 
Mississippi  states  and  territories,  on  the  authority  of 
an  eminent  Congressional  advocate  of  the  railroad  side 
of  the  question.* 

Another  method  of  inflating  railway  securities, 
though  much  less  notorious,  deserves  some  attention. 
Mr.  J.  H.  Devereux's  recent  argument  before  the  Cul- 
lom  Committee,  based  the  claim  for  legislative  aid,  in  the 
work  of  sustaining  artificial  railway  combinations,  upon 
the  small  profits  of  railway  2")roperty.  He  illustrated 
this  with  figures  from  his  own  road,  showing  that, 
while  the  stock  and  debt  of  the  Cleveland,  Columbus, 
Cincinnati,  and  Indianapolis  Railroad  was  $6,425,000 
in  1867,  the  average  net  earnings  were  $653,000 ;  that 
in  the  next  five  years,  after  an  increase  of  the  stock  to 
$18,366,275  on  mileage,  increased  from  188  to  391 
miles,  the  net  earnings  averaged  $857,000;  while  in 
the  next  eleven  years,  the  stock  and  debt  being  in- 


*Hon.  William  Walter  PheljDS,  one  of  the  leading  oiDponents  of  the  Rea- 
gan bill  in  the  House  of  Representatives,  said,  in  a  letter  dated  April  24, 
1884,  in  ans\\-er  to  criticisms  on  Mr.  Blaine's  investment  in  Western  rail- 
vray  securities : 

"  He  negotiated  for  a  block  of  the  securities,  -which  were  divided,  as 
usual  in  such  enterprises,  into  three  kinds — first-mortgage  bonds,  second- 
mortgage  bonds,  and  stock.  The  jjrice,  I  think,  was  3  for  1.  That  is, 
the  purchaser  got  first  -  mortgage  bonds  for  his  money,  and  an  equal 
amount  of  second  mortgage  or  land-grant  bonds,  and  of  stock  thrown 
in  as  the  basis  of  possible  profits.  ...  I  went  myself  at  this  time  into 
several  adventures  of  the  kind  on  that  ratio,  and  have  always  under- 
stood that  Senator and  his  friends  got  their  interest  in  the  Burling- 
ton and  Missouri  road  on  the  same  basis  of  3  for  1." 


The  Fictitious  Element  in  Bailway  Policy.        2G7 

creased  to  $22,286,000,  the  net  earnings  only  averaged 
8650,000  a  year.  This  Mr.  Devereux  presented  as  an 
illustration  of  the  disastrous  results  of  competition  ; 
and  it  certainly  has  that  appearance  on  its  face.  But 
he  adroitly  concealed  the  fact  that  while  the  capitali- 
zation per  mile  of  his  road,  at  the  period  when  his  com- 
parison commenced,  was  833,000,  the  expansion  of  his 
lines,  in  the  next  five  years,  had  afforded  the  opportu- 
nity of  a  still  greater  expansion  of  the  stock  and  debt, 
making  the  capitalization  nearly  847,000  per  mile; 
while  eleven  years  later,  at  the  end  of  1888,  when,  as  he 
says,  the  further  enlargement  of  the  capitalization  was 
due  "to  having  acquired,  partly  by  ownership  and 
partly  by  lease,  345-1  miles  of  additional  road,"  owned 
by  the  compan}^,  according  to  "  Poor's  Manual,"  the 
mileage  was  exactly  what  he  states  it  to  have  been 
eleven  years  before,  while  the  debt  and  stock  had 
grown  to  the  very  large  sum  of  $57,000  per  mile. 
Had  Mr.  Devereux  stated  this  fact,  his  picture  of  the 
trials  of  his  road  mio;ht  not  have  been  so  movins;. 
Suppose  that  the  capitalization,  so  largely  increased 
during  a  period  of  decidedly  cheap  railway  construc- 
tion, had  been  kept  down  to  the  original  average  of 
$33,000  per  mile.  The  capitalization  would  then  have 
been  $12,902,000  upon  the  increased  mileage,  on  which 
the  average  net  earnings  of  8650,000  would  have  been 
more  than  5  per  cent. ;  not  immense  prosperity,  but 
less  disastrous  than  Mr.  Devereux  would  have  our 
legislators  believe.  Add  to  this  the  recent  stock  divi- 
dend of  the  Chicago  and  Northwestern  Company,  of 
25  per  cent,  on  837,000,000  capital,  in  which  there  was 
already  estimated  to  be  810,000,000  of  water,  and  the 
case  of  the  Wabash  road  on  which  a  capitalization  of 


268  The  Railways  and  the  Eejniblic. 

$126,000,000  was  formed,  of  wbicli  lialf  is  confessed 
to  be  fictitious,  and  it  appears  that  tlie  Middle  States 
and  the  granger  railroads  are  not  free  from  this  prev"- 
alent  dropsy. 

In  conclusion,  one  more  class  of  railway  enterprises 
may  be  referred  to  in  connection  with  this  subject.  In 
a  recent  paper  Mr.  Edward  Atkinson  asserts  that  "the 
elimination  of  Avhat  has  been  called  watered  stock 
and  bonds"  against  which  "the  silly  crusade  of  so- 
called  anti-monopolists  has  been  directed  is  in  process 
of  accomplishment  by  methods  far  more  potent  than  any 
possible  legislative  acts,"  and  that  we  "  have  reached 
the  end  of  construction  companies,  speculative  build- 
ing, and  of  the  issue  of  two,  three,  or  four  dollars  of 
securities  for  every  dollar  actually  paid."  It  is  pleas- 
ant to  be  assured  of  this  comfortable  conclusion  by  so 
high  an  authority  as  Mr.  Atkinson,  if  even  his  author- 
ity can  destroy  the  force  of  certain  conspicuous  facts. 
Otherwise  the  extreme  examples  of  this  practice  fur- 
nished by  capitalists  in  the  cases  of  the  Nickel  Plate, 
West  Shore,  and  South  Pennsylvania  roads  indicate 
that  the  evils  of  construction  companies,  speculative 
building,  and  the  issue  of  several  times  the  cost  of  the 
enterprise  in  securities,  were  never  more  rife  than  now. 
The  three  roads  named  were  built  when  the  cost  of 
construction  was  lowest.  They  were  projected  by  cap- 
italists whose  large  resources  should  have  enabled 
them  to  carry  out  their  projects  without  floating  ficti- 
tious securities.  Yet  these  eminent  representatives  of 
railway  finances  overloaded  their  projects  with  many 
times  their  cost  in  stocks  and  bonds,  in  a  manner  that 
fairly  rivals  the  achievements  of  the  transcontinental 
corporations.     The  New  York,  St.  Louis,  and  Chicago 


The  Fictitious  Element  in  Railway  Policy.        269 

company,  by  contracting  with  its  own  members  to  build 
the  road  for  the  bonded  debt,  created  a  capitalization 
of  875,000,000,  or  $148,000  per  mile.  Their  project 
was  called  into  existence  by  the  fjictitious  profits  of  the 
trunk-line  pool  from  1877  to  1881 ;  and  by  thus  water- 
ing the  stock,  while  building  their  road  parallel  to  the 
Lake  Shore  railway,  they  were  able  to  force  upon  the 
Vanderbilt  roads  a  controlling  interest  in  their  shares 
at  a  depreciated  price,  but  one  which  left  tliem  a  vast 
profit.  The  New  York,  West  Shore,  and  Bufl^ilo  Rail- 
way, a  project  paralleling  the  New  York  Central,  also 
suggested  by  the  temporary  successes  of  the  trunkdine 
pool,  created  a  capitalization  of  $49,000,000  of  stock 
and  $70,000,000  of  funded  debt  upon  498  miles  of  road, 
or  $221,000  of  securities  per  mile.  A  contract  with  a 
construction  company,  composed  of  the  projectors,  at 
$100,000  per  mile  for  single  track  and  $200,000  per 
mile  for  double  track,  to  be  paid  in  stocks  and  bonds, 
is  presumptive  evidence  of  inflation;  and  the  propor- 
tion of  actual  value  to  the  total  of  capitalization  was 
revealed  by  the  ofters  of  the  construction  company,  in 
1882  and  1883,  to  sell  the  securities  of  the  company, 
with  the  stocks  thrown  in  as  a  bonus,  so  that  the  cash 
returns  would  be  from  two  thirds  to  less  than  half 
their  fiice  value.  The  President  of  the  North  River 
Construction  Company  declared,  in  a  pamphlet,  in 
1883,  that  the  cost  of  the  work  for  which  it  received 
about  $75,000,000  in  securities  was  $34,160,000.  This 
was  intended  to  facilitate  the  sale  of  the  construction 
company's  shares ;  but  with  tlie  issue  of  $20,000,000  of 
securities  to  purchase  an  existing  road  included  in  the 
line,  it  showed  the  legitimate  capitalization  to  be  $00,- 
000,000.     It  will  Ije  a  more  liberal  estimate  than  that 


270  The  Railways  and  the  Repiiblic. 

of  the  builders  of  the  road  to  suppose  that  all  the 
bonds  represent  a  legitimate  investment  and  that  the 
stock  is  fictitious.  The  price  placed  upon  the  prop- 
erty, in  its  recent  purchase  by  the  New  York  Central, 
indicates  that  $20,000,000  of  the  bonds  are  also  re- 
garded as  water. 

The  South  Pennsylvania  Railroad  project  illustrates, 
in  many  striking  features,  the  great  railway  abuses  of 
the  times.  The  projectors  of  this  enterprise,  in  itself 
legitimate  and  desirable,  had  an  offer  to  build  and 
equip  the  road  for  $10,000,000,  and  they  planned  a 
liberal  inflation,  by  raising  that  sum  on  bonds  and 
making  the  stock  capital  wholly  fictitious.  But  the 
project  fell  into  the  hands  of  the  Vanderbilt  interest, 
and  the  plan  was  found  to  be  wholly  insufficient.  The 
stock  was  placed  at  $20,000,000  and  the  bonds  at  the 
same  amount.  A  contract  was  made  with  a  construc- 
tion company,  said  to  consist  of  Mr.  Vanderbilt's  clerks 
and  brokers,  to  do  for  $15,000,000  the  work  which  a 
responsible  contractor  had  offered  to  do  for  $6,500,000. 
The  $15,000,000  were  to  be  furnished  by  a  syndicate 
of  capitalists  from  New  York,  Cleveland,  Philadelphia, 
and  Pittsburgh,  -who  were  to  receive  for  their  subscrip- 
tions the  $40,000,000  of  securities.  It  is  now  asserted 
on  good  authority  that  the  sum  of  $10,000,000  is  an 
ample  estimate  of  the  legitimate  investment  represented 
by  the  $40,000,000.  Upon  this  basis  of  four  dollars 
in  capitalization  for  one  of  cost,  the  -greatest  railway 
capitalists  of  the  country  conducted  this  enterprise,  un- 
til, in  pursuance  of  a  broader  policy,  they  sold  out  to 
the  Pennsylvania  Kailroad,  deserting  the  men  who  had 
put  their  money  into  the  project  in  good  fiiith,  to  se- 
cure a  competing  line,  that  they  might  to  establish  the 


The  Fictitious  Element  in  Railway  Policy.        271 

monopoly  of  the  New  York  Central  and  Pennsylvania 
roads  over  their  respective  districts. 

We  have  thus  glanced  at  fifteen  of  the  important 
railroads,  with  reference  to  the  issue  of  fictitious  or  du- 
plicate stocks.  They  are  leading  lines,  and  their  man- 
agement includes  the  greatest  magnates  of  railway 
finance.  The  largest  railway  stockholder  of  the  land 
was  the  master-mind  of  two  of  these  companies ;  the 
two  next  largest  shareholders  in  the  nation  joined  in 
inflating  the  stock  of  another.  These  instances  com- 
prise fair  illustrations,  from  each  class  of  railway  traf- 
fic, including  three  trunk  lines,  four  anthracite  -  coal 
roads,  two  transcontinental  railways,  three  grain-carry- 
ing roads  of  the  Western  States,  and  three  recent  proj- 
ects constructed  or  attempted  when  labor  and  mate- 
rials were  cheapest.  Wlien  we  find,  upon  a  summary 
of  the  figures,  that  the  total  capitalization  of  these  fif- 
teen corporations  is  $1,466,000,000,  or  more  than  one 
fifth  of  the  entire  railway  capitalization  of  the  nation, 
and  that  on  their  securities  the  lowest  estimate  of  the  fic- 
titious element  is  $596,000,000,  or  nearly  one  half,  some 
conception  is  reached  of  the  extent  of  this  practice  of 
inflation,  AVhen  we  call  to  mind  the  many  roads  that 
have  been  built  on  bonds  throughout  the  West,  often 
on  bonds  sold  at  three  cpiarters  or  half  their  face  value; 
when  ^ve  reflect  on  Mr.  William  Walter  Phelps's  decla- 
ration that  the  practice  of  issuing  in  securities  three 
times  the  amount  of  cash  subscriptions  is  "  the  usual 
one"  in  trans-Mississippi  projects;  when  we  remember 
the  hundreds  of  millions  of  securities  issued  in  dupli- 
cation of  securities  owned  by  the  railway  companies 
themselves;  surely  the  estimate  of  "Poor's  Manual," 
that  the  actual  cost  in  money  of  all  the  railroads  in 


272  The  Hailways  and  the  Bej)ublic. 

tbe  United  States  in  1883  did  not  exceed  their  funded 
and  floating  debts,  an  aggregate  of  $3,787,000,000,  and 
that  the  fictitious  capitalization  was  $3,708,000,000,  is 
moderate  and  conservative."^'' 

How  does  all  this  affect  the  public  interests  ?     Mr. 

*  Mr.  H.V.  Poor  estimates  the  actual  cost  of  all  the  railways  of  the  United 
States  at  830,000  per  mile.  When  equipment  is  taken  into  consideration, 
this  estimate  must  imply  the  partial  scaling  down  of  the  cost  towards  tlie 
present  low  prices  of  labor  and  materials.  This  may  seem  severe  on 
roads  which  were  built  at  high  prices ;  but  Mr.  Poor  has  too  often  been 
cited  as  a  witness  on  the  railway  side  of  the  case  to  allow  any  contradic- 
tion of  his  testimony  at  present;  and  the  following  extracts  from  his 
"Manual"  for  1884  are  conclusive  as  to  the  extent  of  stock  watering: 
"The  increase  of  share  capital  and  indebtedness  of  all  the  companies  for 
the  three  years  ending  December  31, 1883,  was  $3,093,433,054,  the  cost  of 
the  new  mileage,  as  represented  by  sliare  capital  and  debt,  being  about 
$70,000  i)er  mile.  The  increase  in  the  tliree  years  ot  the  funded  debts 
of  all  the  companies  was  $934,165,440  ;  of  tlieir  floating  debts,  $169,880,- 
40G ;  of  the  two,  $1,094,045,846.  It  is  not  probable  tliat  the  cost  of  the 
mileage  constructed  in  the  three  years  equalled  the  increase  of  funded 
and  floating  debts  by  at  least  the  sum  of  $300,000,000.  The  cost  of  the 
mileage  constructed  certainly  did  not  exceed  $30,000  to  the  mile.  The 
whole  increase  of  the  share  capital,  $999,387,308,  and  a  jjortiou  of  the 
funded  debt,  was  in  excess  of  cost  of  construction. 

"  It  is  in  this  immense  increase  of  fictitious  capital  that  is  to  be  found 
the  cause  of  the  general  distrust  which  prevails,  and  the  enormous  decline 
in  the  price  of  railroad  securities.  From  1879  to  near  the  close  of  1883  a 
most  singular  delusion  rested  upon  the  public  as  to  their  value,  and  this 
delusion  was  taken  advantage  of  on  a  vast  scale  by  able  and  unscrupu- 
lous adventui'ers.  Whatever  was  manufactured  and  put  afloat  was  seized 
with  avidity  by  an  eager  and  uninformed  ijublic.  The  delusion  was  in- 
creased and  prolonged  by  payments  on  a  very  large  scale  of  intereit  and 
dividends  from  capital.  In  this  delusion  the  most  loud-mouthed  and  un- 
scrupulous promoters  usually  had  the  greatest  success.  .  .  . 

"  If  it  be  assumed  that  the  cost  in  money  of  all  the  roads  in  operation 
in  the  United  States  in  1883  did  not  exceed,  as  it  certainly  did  not,  the 
amount  of  their  funded  and  floating  debts,  $3,787,410,738,  the  actual  in- 
vestment was  a  most  profitable  one.  The  net  earnings  for  the  year  were 
$336,911,884,  a  sura  equalling  about  9  per  cent,  on  their  cost.  If  the  fic- 
titious capital  could  be  eliminated  from  their  accounts,  their  success,  as 
investments,  would  have  no  parallel." 


The  Fictitious  Element  in  Railway  Policy.        273 

Edward  Atkinson  and  Mr.  Fink  insist  that  there  has 
been  an  unnecessary  outcry  against  "  stock  watering"; 
so  that  it  is  pertinent  to  ask  whether  this  gigantic 
manufacture  of  purely  paper  values  has  any  evil  i-e- 
sults.  The  instances  cited  show  that  securities  in  ex- 
cess of  cash  investments  are  produced:  (1),  by  stock 
dividends  of  prosperous  companies,  capitalizing  what 
are  called  surplus  earnings ;  (2),  by  issuing  the  secur- 
ities of  unprosperous  roads,  for  which  the  companies 
receive  only  a  portion  of  their  face  value;  (3),  by  the 
purchase  of  other  railways,  of  mining  or  manufacturing 
propert}',  or  of  real  estate,  or  by  consolidation  with  other 
companies,  paying  for  the  property  prices  lai'gely  in  ex- 
cess of  the  real  value,  either  in  the  capital  stock  of  the 
company  or  in  new  securities;  and  (4),  by  the  construc- 
tion of  railways  under  contracts  by  which  the  projec- 
tors, as  a  railway  company,  pay  to  themselves,  as  con- 
tractors, from  two  to  four  times  the  cost  of  the  work 
in  stocks  and  bonds,  selling  these  to  the  public  as  they 
can.  The  first  method  usually  involves  a  deception  as 
to  the  percentage  of  profits  which  will  be  earned  on 
the  inflated  stock,  and  is  a  more  or  less  transparent 
fraud  on  investors  as  to  the  real  value  of  their  shares. 
The  second  is  often  excused  by  the  necessities  of  com- 
panies, compelled  to  raise  money  on  the  best  terms  they 
can ;  but  it  is  no  less  deceptive  as  to  the  actual  invest- 
ment, and  is,  by  the  secrecy  which  always  attends  it, 
more  demoralizing  than  the  open  stock  watering  of  the 
first  method.  Tlie  third  is  a  conspiracy  to  cheat  both 
the  corporation  and  purchasers  of  its  securities.  The 
fourth  is  a  conspiracy  of  the  founders  of  the  coi'jiora- 
tion  to  enrich  themselves  by  robbing  it,  that,  when  they 
have  ruined  their  corporation,  they  may  sell  out  their 

18 


274  The  Bailways  and  the  lie-public. 

stocks  and  bonds  before  tlie  swindle  is  discovered,  and 
finally  inflict  the  loss  upon  the  investing  public. 

The  effect  of  stock  inflation  upon  the  financial  inter- 
ests of  investors  is  more  direct  and  vast  than  its  bear- 
ing upon  the  shipping  interests  of  manufacturers,  mer- 
chants, and  producers.  Although  the  latter  is  our  spe- 
cial subject  in  this  work,  the  importance  of  the  former 
question  warrants  this  sketch  of  the  financial  evils  of 
fictitious  values.  In  fine,  this  practice  of  creating  secu- 
rities in  excess  of  actual  values  has,  by  one  method  or 
another,  imposed  upon  investors  a  volume  of  fictitious 
stocks  and  bonds  more  than  double  the  amount  of  the 
national  debt.  According  to  the  estimate  of  the  most 
widely  acknowledged  statistical  authority  upon  rail- 
ways, through  the  methods  of  sale  or  hypothecation, 
$3,700,000,000  of  purely  paper  values  have  been  sold 
to  the  public.  The  creation  of  these  fictitious  securi- 
ties has  sometimes  been  so  open  and  notorious  that  the 
successful  sale  of  them  seems  to  indicate  eao-erness  to 
be  cheated  on  the  part  of  the  public.  In  other  cases 
the  methods  used  have  been  so  secret  and  so  plausible 
that  it  has  been  almost  impossible  for  the  legitimate 
investor  to  detect  them.  In  the  end,  the  false  values 
have  been  so  mingled  with  the  real,  and  the  fraudulent 
investments  made  to  bear  so  close  a  resemblance  to  the 
honest  ones,  that  at  the  present  time  the  greater  part 
of  the  railway  securities  of  this  country  are  clouded  by 
the  suspicion  of  illegitimacy.  In  the  presence  of  this 
mass  of  falsehoods  and  pretences,  imitating  real  invest- 
ments, it  is  not  strange  that  a  period  of  public  creduli- 
ty should  be  followed  by  a  period  of  general  suspicion, 
when  none  of  these  doubtful  investments  are  trusted; 
but  it  is  strange  that  another  period  of  credulity  should 


The  Fictitious  Element  in  Railway  Policy.        275 

come,  allowing  new  inflations  and  fresli  issues  of  ficti- 
tious capitalization.  Suspicion  is  the  natural  and  le- 
gitimate condition  \vbile  such  practices  are  possible. 
The  gigantic  wrong  upon  investors,  perpetrated  in  the 
creation  of  this  $3,700,000,000  of  fictitious  railway  in- 
vestments, is  one  of  the  most  serious  and  unanswerable 
counts  in  the  indictment  ao-ainst  the  railway  kiufrs. 
Besides  this  imposition  on  the  confidence  of  the  public, 
the  practice  of  stock  inflation  reacts  disastrously  upon 
legitimate  railway  interests.  The  loss  which  this  wan- 
ton violation  of  public  confidence  inflicts  upon  the  rail- 
ways themselves,  is  apparent  in  the  rate  of  interest 
which  they  must  pay  on  their  bonded  debt.  If  the 
bonds  of  tlie  railways  wevQ  confined  to  one  lialf  the 
actual  and  honest  cost  of  construction,  they  would  be 
eagerly  sought  for  at  4  per  cent. ;  and  in  that  case, 
$72,000,000  would  have  sufficed  to  pay  the  interest 
charges  in  1884.  This  would  have  left  from  the  net 
earnings  of  that  year  $196,000,000  as  net  profits  instead 
of  the  $91,000,000  realized  under  the  rule  of  inflation  ; 
so  that  the  second  count  in  the  indictment  against  stock 
inflation  is  that  it  has  for  several  years  inflicted  an  an- 
nual loss  upon  the  honest  shareholders  of  the  railways 
exceeding  a  hundred  millions  a  year. 

Again,  the  inflation  of  railway  capital  is  intimate- 
ly connected  with  the  artificial  combinations,  which 
seek  to  sustain  rates  and  create  fictitious  prosperity, 
and  which  lead,  now  to  rivalry  and  ruinous  conflicts 
among  the  roads,  and  now,  when  the  pools  have  been 
temporarily  successful,  to  the  construction  of  parallel 
lines  to  share  the  profits.  In  fact,  the  purpose  and  ex- 
cuse of  pooling  are  found  in  this  vast  volume  of  unwar- 
ranted capitalization.     The  object  of  the  pools  is  to 


276  The  Raihoays  and  the  BepuUic. 

earn  dividends  on  the  watered  stock.  Under  competi- 
tion they  conld  earn  a  fair  dividend  on  the  legitimate 
investment ;  but  when  their  stock  and  debt  are  doub- 
led, the  combinations  are  necessaiy  to  maintain  rates 
which  will  yield  a  profitable  return  on  the  inflated  ag- 
gregate. But  when  that  result  is  attained,  the  violated 
laws  of  trade  work  out  their  own  revenge.  The  pros- 
perity of  the  lines  under  the  pools  stimulates  the  con- 
struction of  new  and  parallel  roads,  either  to  share  the 
profits  of  the  pools,  or  to  force  the  older  corporations  to 
buy  them  off.  Against  the  $500,000,000  of  watered 
securities,  on  which  the  combination  attempts  to  sustain 
rates,  $15,000,000  or  $25,000,000  can  establish  a  new 
competing  line,  and  the  inducement  to  do  so  is  vastly 
enhanced  when,  in  addition  to  a  share  of  the  pooling 
profits,  millions  may  be  made  by  selling  watered  stocks 
to  the  investing  public.  The  $15,000,000  or  $25,000,- 
000  required  to  construct  the  new  road  become  $40,- 
000,000  or  $100,000,000  on  paper.  The  "securities" 
(so  called  in  irony)  are  thrown  upon  the  market,  at  a 
price  which  yields  the  speculators  a  great  profit.  A 
conflict  breaks  out  between  the  newer  and  older  roads, 
which  throws  Wall  Street  into  convulsions,  makes  the 
new  investments  of  the  confiding  public  nearly,  worth- 
less, sets  the  great  corporations  at  the  work  of  cutting 
each  other's  throats  and  throwing  away  their  own 
money,  produces  the  wildest  fluctuations  in  rates,  sur- 
rounds leoritimate  business  with  the  hazards  of  iram- 
bling,  and  plunges  all  the  vast  interests  connected 
with  railway  transportation  into  uncertainty  and  ap- 
prehension. Throughout  all  this,  the  presence  of  ficti- 
tious values  is  at  once  the  cause  and  weakness  of  the 
pools.     It  creates  the  demand  for  artificially  enhanced 


The  Fictitious  Element  zVi  Railway  Policy.        277 

earnings ;  it  exposes  the  older  roads  to  danger  from  the 
competition  of  new  capital ;  it  gives  fresh  projectors  a 
double  resource  in  the  prosecution  of  their  enterprises; 
and  so  the  evil  grows,  with  no  prospect  before  it  but 
that  it  shall  utterly  destroy  the  public  confidence  which 
is  its  foundation,  and  collapse  in  general  disaster. 

Our  last  charge  against  the  practice  of  over-capitali- 
zation is  that  it  assists  railway  managers  to  manipulate 
the  financial  markets.  It  is  unfortunate  that  the  rail- 
way men,  who  have  lamented,  before  investigating  com- 
mittees, the  unremunerative  character  of  railway  invest- 
ments, were  not  asked  to  explain  the  remarkable  in- 
crease of  personal  wealth  among  railway  managers, 
which  has  taken  place  during  years  unprofitable  for 
shareholders.  Of  the  seven  great  fortunes  of  the  East, 
five  have  been  made  in  railway  management;  of  the 
eight  on  the  Pacific  coast,  four  are  the  result  of  the 
same  business.  Of  these  nine  great  railway  capitalists, 
eight  have  been  connected  with  the  creation  of  fictitious 
securities  and  excessive  capitalization,  described  in  the 
preceding  pages.  Unscrupulous  management  can  not 
only  impose  fictitious  securities  upon  the  public,  but  it 
can  make  enormous  profits  by  artificially  causing  vast 
fluctuations  in  prices,  to  the  hurt  and  demoralization 
of  the  financial  world.  By  their  agreement  or  their 
discord  the  managers  can  produce  large  advances  or 
declines  in  the  market  value  of  railway  securities. 
When  the  New  York  Central  and  the  Pennsylvania 
railroads  combined  to  establish  their  respective  mo- 
nopolies in  New  York  and  Pennsylvania,  the  gain  to 
the  Vanderbilt  interest,  by  the  advance  in  stocks,  was 
greater  than  its  entire  investment  in  the  property 
which  it  sold  out.     This  is  but  one  instance.     The  ad- 


278  The  Bailways  and  the  RepuUic. 

vance  ou  railway  investments  succeeding  the  formation 
of  tbe  pool,  from  1876  to  1879,  has  been  estimated  to 
exceed  a  thousand  millions  of  dollars ;  the  gain  in  div- 
idends from  that  cause  has  not  amounted  to  a  tenth  of 
that  sum  in  all  the  succeeding  years.  The  depreciation 
in  railway  values  brought  about  by  rivalry,  by  the 
weakness  of  watered  capital,  and  by  the  efforts  to  en- 
force the  combination  policy,  has  been  more  than  five 
hundred  millions;  the  decrease  in  profits  to  sharehold- 
ers has  been  less  than  2  per  cent,  of  that  amount.  Can 
there  be  a  doubt,  in  the  presence  of  such  vast  changes 
in  market  values,  and  such  comparatively  slight  fluctu- 
ations in  the  actual  results  of  railway  operations,  that  a 
large  share  of  the  railway  management  of  the  nation 
has  consoled  itself  for  the  misfortunes  of  stockholders, 
by  accumulating  private  fortunes,  the  speculations  be- 
ing made  safe  and  easy  by  prior  knowledge  of  the  com- 
binations or  quarrels  which  produced  these  results? 

The  financial  freebooting  which  railway  managers 
have  the  power  to  practise  is  a  vast  subject.  Even  the 
practice  of  stock  watering  and  pooling  seem  to  be  sur- 
passed by  the  achievement  of  a  prominent  railway  ad- 
venturer, who,  practically  confessing  the  betrayal  of  his 
trust  as  President  of  the  Erie  Kailway,  restored  $9,000,- 
000  of  the  diverted  securities,  and  then  made  a  profit 
of  his  shame,  realizing,  by  the  advance  in  Erie  shares, 
more  than  the  value  of  the  stocks  and  bonds  which  he 
had  returned  to  the  corporation.  If  this  is  part  of  the 
history  of  the  second  railway  shareholder  of  the  nation, 
what  doubt  remains  that  many  methods  of  enhancing 
their  fortunes  at  the  expense  of  the  public,  and  of  their 
own  shareholders,  are  habitually  practised  by  railway 
managers  who  value  great  wealth  more  than  obscure 


The  Fictitious  Element  in  Eailway  Policy.        279 

integrity  ?  They  have  the  power  to  transfer  the  money 
of  investors  to  their  own  pockets,  by  the  sale  of  inflated 
stocks  and  bonds,  by  contracts  with  themselves  as  con- 
struction companies,  by  forming  combinations  or  de- 
claring wars  of  rates  to  produce  wide  fluctuations  in 
the  stock  market,  by  ruining  subsidiary  or  rival  lines, 
and  by  such  practices  as  were  described  in  former  chap- 
ters— discriminations,  contracts  with  fast  freight  lines, 
with  eveners,  stock-yards,  transfer  companies,  and  ware- 
housemen ;  and  whether  the  exercise  of  these  powers 
is  general  or  infrequent,  the  investing  public  needs  pro- 
tection as  much  as  the  shipping  public.  But  in  each 
case  the  danger  is  not,  as  the  railway  advocates  insist, 
from  unrestricted  competition,  but  from  the  inflation  of 
stocks,  the  policy  of  combination,  and  the  entire  ab- 
sence of  restraint  upon  reckless  and  dishonest  manage- 
ment. But  there  is  some  reason  for  holdino;  that  in- 
vestors,  as  a  body,  are  largely  responsible  for  the  inju- 
ries they  have  sufi^ered,  and  that  their  claim  for  legisla- 
tive protection  is  less  valid  than  that  of  the  mercantile 
and  manufacturing  interests.  Shippers  have  no  re- 
source against  discriminations  and  the  monopoly  of 
transportation  except  the  law;  and  if  this  fails  them, 
they  must  surrender  their  business  to  the  railway  man- 
agers and  their  ftivorites.  The  investing  j^ublic  has,  to 
some  extent,  a  remedy  in  its  own  hands.  Capitalists 
may  refuse  to  invest  in  securities  that  are  not  above 
the  suspicion  of  dishonest  inflation  ;  shareholders  may 
forbid  such  practices,  and  depose  every  railway  man- 
ager who  attempts  them ;  the  bondholders  of  bankrupt 
corporations  may  reorganize  them  with  a  legitimate 
capitalization ;  in  fine,  the  actual  owners  and  purchas- 
ers of  the  railways  have  the  powder  to  protect  their 


280  Tlie  Railways  and  the  RepuUic. 

property  from  spurious  securities  and  fraudulent  con- 
tracts. But  while  investors  raiglit,  by  common  consent, 
find  a  remedy  for  these  abuses,  the  duty  of  the  law  to  in- 
terfere is  no  less  clear.  There  is  not  much  ground  for 
sympathy  with  the  victim  of  a  confidence  game,  who 
parts  with  his  money  in  the  hope  of  illegal  gain;  but 
the  law  justly  punishes  the  sharper  who  appeals  to  his 
dishonest  cupidity.  If  the  gigantic  confidence  game 
of  issuing  fiat  railway  securities  has  been  aided  by  the 
cupidity  or  blindness  of  investors,  they  have  been  pun- 
ished for  it ;  but  the  po^verful  perpetrators  of  the  fraud 
should  not  be  left  free  to  repeat  it  on  new  victims. 

Many  sug-o-estions  have  been  made  for  le2;islation  to 
prevent  stock  watering  and  financial  freebooting;  and 
their  detailed  discussion  is  not  necessary  for  the  pur- 
poses of  this  work.  But  it  is  pertinent  to  point  out 
that  this  evil,  like  discriminations  and  combinations, 
is  possible  only  because  of  the  unrestrained  power  of 
the  railway  managers.  It  would  seem  reasonable  to 
ask  that  the  law  should  impose  restraint  on  the  class 
which  perpetrates  these  abuses,  rather  than  on  the  class 
which  has  suftered  from  them.  But  we  are  confronted 
with  a  proposition  that  legislation  shall  abolish  compe- 
tition, and  restrain  the  building  of  new  railways;  in 
other  words,  that  it  shall  establish  the  managers,  who 
have  imposed  these  fictitious  securities  on  the  nation, 
in  the  full  enjoyment  of  their  profits,  and  restrain  the 
freedom  of  the  public  which  has  been  their  victim. 
This  would  be  a  mockery  of  private  rights  and  public 
justice.  Let  the  law  ordain  that  the  stock  and  bonds 
of  a  corporation  shall  not  exceed  the  true  cost  of  its 
construction  and  equipment ;  that  the  funded  debt  of 
a  railway  shall  not  exceed  half  its  total  capitalization ; 


The  Fictitious  Element  in  Railway  Policy.        281 

aucl  that  a  railway  sold  nnder  foreclosure  shall  be  re- 
organized on  the  basis  of  the  capital  nctually  paid  on 
such  reorganization,  and  the  unforeclosed  mortgages. 
These  provisions,  with  the  prohibition  of  the  capitali- 
zation of  surplus  earnings,  recommended  by  the  New 
York  Chamber  of  Commerce,  and  the  uniformity  and 
publicity  of  railway  accounts  shown  to  be  necessary 
by  Mr.  Simon  Sterne,  in  addition,  would  restrain  the 
real  abuses  instead  of  rewarding  the  men  who  have 
committed  them.  The  wild  construction  of  railways, 
stimulated  by  pooling  and  facilitated  by  the  pi-actice 
of  stock  watering,  can  be  prevented,  by  j-equiriiig  that 
every  dollar  of  stock  or  bonds  issued  by  a  new  road 
shall  represent  a  dollar  invested.  To  enact  that  capi- 
tal shall  not  be  free  to  embark  in  a  leeritimate  enter- 
prise,  without  the  approval  of  some  official  body,  is  to 
place  the  freedom  of  trade  under  the  control  of  bureau- 
cracy, and  to  set  the  claims  to  i:)rotection  of  the  spu- 
rious railway  issues  above  the  freedom  of  honest  capital. 
The  duty  of  the  law  is  to  restrain  abuses,  and  to  leave 
legitimate  investments  open  to  all.  By  proper  restric- 
tions it  can  accomplish  that  result,  insure  security  to 
the  capital  invested  under  its  provisions,  and  if  the  is- 
sue of  bonds  is  confined  to  half  tlie  actual  investment 
on  the  property,  raise  that  class  of  securities  to  a  level 
of  stability  approximating  that  of  government  bonds. 

It  has  been  denied  by  Messrs.  Fink,  Atkinson,  and 
Devereux,  that  over-capitalization  affects  commerce. 
They  insist  that  competition  fixes  rates,  and  prevents 
watered  stocks  from  earning  dividends.  But  they  de- 
stroy their  own  aigument,  by  asking  legal  support  for 
the  polic}?-  of  combination,  on  the  ground  that  the  rail- 
roads, under  competition,  cannot  earn   a  fair   return 


2S2  The  Railways  and  the  Republic. 

upon  tlieir  stock  and  bonds.  It  is  the  advocates  of  the 
railwaj's  then  who  introduce  this  question ;  for  if  the 
capitalization  is  not  honest  and  real,  their  reasoning  is 
valueless.  Watered  stocks  are  used  to  prove  that  the 
rates  which  will  pay  a  profit  on  them,  as  if  they  were 
invested  money,  are  reasonable  rates.  It  is  suggested 
that  rates  are  too  low,  that  the  railways  have  done 
too  much  for  the  public,  and  now  need  aid  from  the 
law  to  obtain  fair  profits.  Let  us  examine  the  facts. 
The  earnings  of  the  railways  on  their  apparent  capital- 
ization last  year  were  only  3.52  per  cent.,  and  for  1882, 
as  stated  by  Mr.  Fink  to  the  Senate  Committee  on 
Labor  and  Education  two  years  ago,  4  per  cent.  But 
this  apparent  capitalization,  as  we  have  seen,  is  .about 
twice  the  real  investment ;  so  that  the  earnings  are 
about  twice  as  large  a  return  upon  the  real  capital  as 
appears  from  the  statement.  Let  us  be  more  liberal  to 
the  railways  than  Mr.  Poor,  and  assume  that  the  rail- 
ways of  the  nation  actually  cost  $4,000,000,000.  On 
that  sum  the  net  earnings  of  $268,000,000  amount  to 
6.7  per  cent.  If  the  cost  were  represented  half  by  stock 
and  half  by  bonds,  the  unquestioned  security  of  the 
latter  would  make  4  per  cent,  an  ample  rate  of  interest, 
requiring  $80,000,000  of  the  net  earnings.  This  would 
have  left  $188,000,000  for  dividends,  or  9.4  per  cent, 
upon  the  stock.  In  this  view,  the  conditions  of  rail- 
way business  do  not  seem  to  be  so  devoid  of  recom- 
pense as  Messrs.  Fink,  Devereux,  and  Blanchard  would 
have  us  believe.  Mr.  H.  Y.  Poor,  in  reviewing  the  rail- 
way earnings  for  1883,  afiirmed  that  "if  the  fictitious 
capital  could  be  eliminated  from  their  accounts,  their 
success  as  investments  would  have  no  parallel."  This 
remark  applies  with  double  force  to  the  railway  busi- 


The  Fictitious  Element  in  Railway  Policy.        283 

ness  of  1884.  In  a  year  of  great  business  failures  and 
general  depression,  when  business  men  were  exception- 
ally fortunate  if  they  were  able  to  preserve  their  capi- 
tal unimpaired ;  when  the  prices  of  agricultural  prod- 
ucts were  so  low  that  corn  was  burned  for  fuel  in  the 
West,  and  the  market  price  of  ^vheat  in  Europe  would 
hardly  pay  the  transportation  charges  from  Kansas; 
when  manufactories  stood  idle  and  artisans  confronted 
starvation — in  such  a  year  as  this  the  railway  interest 
earned  6.7  per  cent,  on  its  actual  cost,  and,  if  its  debt 
had  been  placed  on  a  secure  basis,  would  have  yielded 
the  shareholders  9.4  per  cent,  profit  on  their  invest- 
ment. Instead  of  the  railways  being  in  distress,  they 
have  been  the  most  prosperous  of  the  great  investments 
of  the  time,  and  in  the  year  of  alleged  disaster,  when 
earnings  and  profits  fell  tar  belo\v  their  former  average, 
secured  a  return  upon  their  cost  which,  as  Mr.  Poor 
says,  "is  unparalleled."  * 

The  real  purpose,  then,  of  the  efforts  to  legalize  com- 
bination, is  to  obtain  ^^I'ofits  on  fictitious  capital  by 
abolishing  competition.  Fictitious  capitalization  affects 
the  interests  of  the  public  as  shippers,  mainly  by  afford- 
ing at  once  the  provocation  and  the  excuse  for  an  at- 
tack upon  the  principle  of  competition,  by  combining 
in  pools   to   earn    dividends  on  inflated    capital     If 

*  It  is  not  intended  to  assert  that  rates  are  unreasonably  liigh ;  but  to 
show  the  falsity  of  the  claim  that  they  are  so  ruinously  low  as  to  call  for 
governmental  interference.  The  average  earnings  of  nearly  seven  per  cent. 
on  legitimate  railway  capital  arc  not  objected  to  by  any  sensible  man,  but 
the  fact  tliat  the  average  rates  conceal  the  abuses  of  discriminations. 
The  case  was  succinctly  stated  by  Mr.  F.  B.  Thurber,  before  the  Cullom 
Committee,  as  follows:  "Rates  as  a  whole  on  inter-state  traffic  are  now 
lower  tiian  ever  before,  and  in  some  cases  unreasonably  low,  but  in  cer- 
tain sections  and  on  certain  kinds  of  traffic  rates  arc  still  excessive,  and 
unjust  discriminations  pervade  the  entire  system." 


2S4  The  Railways  and  the  Republic. 

the  capital  had  been  limited  to  the  legitimate  cost, 
there  would  be  no  excuse  for  arbitraiy  devices  to  affect 
rates;  since  even  in  a  year  when  the  pools  were  un- 
successful, and  all  other  business  was  unprofitable,  rail- 
way property  earned  a  good  average  profit  on  a  true 
valuation.  The  effort  of  the  railway  kings  to  destroy 
competition,  after  years  of  partial  success,  has  of  late, 
for  a  considerable  period,  entirely  failed;  and  it  is  in- 
dustriously taught,  by  advocates  of  the  railways,  that 
competition  in  raihvay  traffic  means  ruin,  and  that  the 
state  must  interfere  to  prevent  it  from  wrecking  the 
system.  A  railway  president  in  the  United  States 
Senate  gi'avely  says  to  that  eminent  body,*  "the  gen- 
eral rule  that  competition  is  best  for  the  community 
and  for  the  trade  does  not  ahvays  work,  and  will  fre- 
quently not  work  at  all  in  railroading,"  and  proceeds 
to  support  this  denial  of  the  laws  of  trade,  l)y  showing 
how  railways  will  cut  each  others  throats  in  the  eflbrt 
to  establish  arbitrary  rates,  until  their  rivalry,  sustained 
solely  by  the  hope  of  obstructing  competition,  drives 
the  weakest  or  the  most  highly  watered  corporation 
into  bankruptcy.  Another  railway  president  tells  the 
Senate  Committee  that  "  competition  that  is  wholly  un- 
restrained will  ultimately  work  in  this  matter  a  harvest 
of  general  disaster;"  and  this  idea,  advanced  by  Senator 
Brown  and  Messrs.  Devereux,  Adams,  Fink,  Blanchard, 
Ackerman,  and  a  score  of  others,  is  echoed  by  the  rail- 
way journals.  But  the  complaint  against  competition 
really  means  that  it  has  done  much  to  reduce  the  ex- 
cessive inflation  of  railway  values,  and  to  bring  them 
down  nearer  to  the  true  standard  of  actual  investment; 

*  Senator  J.  E.  Brown's  speech,  Congressional  Record,  vol.  xvi.  pp.  875 
and  876. 


The  Fictitious  Element  in  Railway  Policy.       285 

and  that  it  Las  thus  exposed  the  stock-watering  prac- 
tices of  the  railway  magnates.  It  is  ruinous  and  de- 
moralizing, because,  when  the  ]'ailwa3's  have  earned  fair 
profits,  it  has  prevented  them  from  levying,  upon  the 
business  public,  rates  which  will  double  these  profits, 
and  return  high  interest  on  their  fictitious  securities. 
And  now,  in  order  to  defeat  this  influence,  and  make 
the  imposition  of  the  false  railway  capital  on  the  busi- 
ness interests  of  the  country  completely  successful,  every 
organ  of  these  corporations  calls  on  the  legislative  power 
to  legalize  pools,  and,  as  Mr.  Fink  puts  it,  to  "  compel " 
the  railways  to  form  associations  for  maintaining  rates. 
A  similar  course  might  be  grateful  to  other  depressed 
interests.  Half  of  the  blast  furnaces  have  stood  idle 
most  of  the  last  year,  under  the  competition  of  works 
erected  with  improved  appliances  and  at  lower  cost. 
The  owners  of  these  useless  establishments  would 
doubtless  like  to  force  their  competitors,  by  law,  into 
associations,  to  maintain  such  prices  for  iron  that  their 
obsolete  stacks  might  go  into  operation ;  but  railways 
would  be  the  first  to  plead  the  interests  of  the  public, 
as  consumers  of  iron,  against  suck  conspiracies.  The 
owners  of  houses  might  approve  a  scheme  to  suppress, 
by  legislative  aid,  the  competition  for  tenants,  and  so 
raise  the  rents  of  houses  to  twice  the  fiiir  return  for 
their  actual  cost.  Such  schemes  are,  of  course,  absurd 
and  impossible,  in  branches  of  business  open  to  indef- 
inite numbers  of  private  citizens;  but  in  principle  the 
policy  supported  by  all  the  power  of  the  great  railway 
magnates  is  the  same.  The  demand  for  protection  of 
the  railways  against  competition  is  no  less  a  defiance  of 
the  laws  of  trade  and  of  the  connnon  law,  as  well  as 
of  the  constitutions  of  many  states.    Business  intei'ests 


286  Tlie  Bailways  and  the  Republic. 

in  general  nfay  meet  adversity  and  depression  as  best 
they  can ;  but  the  railways  must  be  helped  to  increase 
an  already  exceptional  prosperity  by  the  utmost  power 
of  the  law.  Commerce  is  not  only  to  be  left  to  struggle 
against  ordinary  adversities,  and  the  current  railway 
abuses  of  discrimination,  extortion,  and  monopoly,  but 
it  is  to  be  bound  hand  and  foot  to  the  chariots  of  the 
railway  kings  and  forced  to  bear  the  burden  of  an  il- 
legitimate valuation  of  $3,700,000,000  on  the  railways; 
while  legislation  is  to  give  its  attention  to  the  great 
work  of  confirming  the  corporations  in  their  control  of 
transportation,  and  of  enabling  them  to  extract  from 
trade  a  revenue  upon  fictitious  securities,  amounting  to 
two  and  a  half  times  the  national  debt ! 

The  project  of  authorizing  the  railways  to  join  in 
one  vast  combination,  to  control  transportation  and 
abolish  competition,  will  be  accepted  or  rejected,  as  the 
nation  is  willing  to  make  the  railways  absolute  sover- 
eigns of  commerce,  or  chooses  to  preserve  the  indepen- 
dence of  trade,  and  to  assert  the  supremacy  of  popular 
rights.  If  personal  and  commercial  integrity  are  to  be 
maintained,  and  our  political  system  freed  from  the 
domination  of  corporations,  then  the  aim  of  legislation 
will  be  to  restrain  the  corporations,  to  prevent  all  en- 
croachment on  public  rights,  and  to  maintain  and  ex- 
tend the  influence  of  competition,  as  the  best  agency 
for  regulating  their  conduct  and  checking  projects  of 
inflation.  So  long  as  the  public  welfare,  the  preserva- 
tion of  justice  and  equality  among  citizens,  and  the 
prevention  of  the  growth  of  privileged  and  favored 
classes  are  controlling  principles  in  legislation,  this 
spurious  remedy  will  find  no  favor. 


CHAPTER  VIII. 

COMPETITION   AND    COMBINATION. 

The  policy  of  the  railroads  is  to  suppress  the  free 
action  of  economic  law,  denying  the  healthful  influence 
of  competition.  This  policy  has  certainly  had  an  im- 
portant influence  in  limiting  competition,  impairing  its 
regulative  power,  and  disturbing  the  natural  work  of 
economic  laws.  The  question,  therefore,  arises,  what 
these  law^s  would  accomplish  if  they  were  entirely  nn- 
obstructed.  What  would  be  the  efl^'ect  upon  the  rail 
way  business,  and  upon  its  current  abuses,  if  competi- 
tion were  as  free  and  universal  in  it  as  it  is  in  any  oth- 
er branch  of  trade  ? 

Competition  is  intimately  connected  with  discrimina- 
tion in  rates.  Its  presence  or  absence  is  the  determin- 
ing fiict  which  forbids  or  permits  the  railways  to  bur- 
den  the  public  with  unequal  and  unjust  rates.  The 
presence  of  competition  at  one  point,  and  its  absence  at 
another,  produce  all  discriminations  between  localities. 
The  practice  of  charging  less  for  a  long  haul  than  a 
short  one  does  not  arise  from  any  love  of  the  railways 
for  doing  a  greater  service  for  less  money,  but  from  the 
fact  that  there  is  competition  for  freiglit  for  the  longer 
distance  and  none  for  the  shorter.  The  practice  of 
charging  "  wliat  the  freight  will  bear"  cannot  stand  be- 
fore free  competition  for  the  carriage  of  sucli  freight. 
If  there  is  no  competition,  tlie  decision  of  the  railway 


288  The  Railways  and  the  Bejpuhlic. 

that  freight  from  one  mine  or  factory  will  bear  a  high- 
er rate  than  that  from  a  riv^al,  is  final.  If  competition 
is  free,  its  effect  is  controlled  by  the  common  judgment 
of  the  competing  roads  as  to  what  chai'ge  will  yield 
them  a  fair  return.  The  policy  of  the  railway  pool  to 
suspend  competition  between  rival  routes,  and,  w^hen 
necessary,  to  imite  their  forces  to  suppress  it,  shows 
how  the  railways  appreciate  its  power  and  desire  to 
abolish  it.  In  all  these  respects,  the  presence  or  ab- 
sence of  free  competition  exerts  an  active  and  control- 
ling influence  in  favor  of  impartiality  in  railway  rates. 
The  vast  importance  of  this  influence  warrants  an  in- 
quiry into  its  character  and  operations. 

Competition,  in  commerce,  is  the  rivalry  of  produ- 
cers, merchants,  and  carriers ;  each  of  them  striving  to 
secure  business  by  holding  out  superior  inducements  for 
the  employment  of  his  services.  The  superiority  may 
be  either  in  cheapness,  or  in  the  quality  or  the  prompt- 
ness of  the  service.  But  in  any  case  the  purpose  of 
competition,  in  manufactures,  trade,  or  transportation, 
is  to  secure  patronage  or  custom  by  doing  more  for  the 
same  money  than  any  rival.  Thus  competition  seeks 
to  increase  profits  by  enlarging  the  volume  of  transac- 
tions, so  that  a  small  profit  yields  greater  returns  than 
a  larger  margin  on  a  small  volume  of  business.  Its  le- 
gitimate operation  secures  increased  gains  to  active  and 
intelligent  enterprise.  But  the  interests  among  which 
the  railway  methods  have  been  prevalent  seem  to  im- 
agine that  the  old  axiom,  "competition  is  the  life  of 
trade,"  has  been  repealed  by  the  modern  conditions 
of  commerce.  No  doubt  it  may  be  plausibly  asserted 
that  corporate  influences  have,  in  these  times,  destroyed 
much  of  the  power  of  competition  in  commerce ;  but 


Corrvpetition  and  Combination.  289 

the  assertion  tliut  free  competition  has  always  produced 
the  healthiest  and  most  prosperous  condition  of  trade 
remains  indisputable.  Yet  the  practical  denial  of  it  is 
so  general,  in  the  current  combinations  and  pooling  de- 
vices, that  it  is  worth  while  to  review  some  of  the  ben- 
efits which  unhampered  competition  confers  on  com- 
merce. 

The  first  of  these,  already  mentioned,  is  the  expan- 
sion of  commerce — competitors  increasing  their  business 
by  narrowing  their  mai-gin  of  profits.  In  tins  respect 
there  is  no  other  power  which  can  take  its  place.  Ex- 
cept under  the  pressure  of  competition  no  man  has  the 
foresight  to  cut  down  his  prices,  so  as  to  stimulate  trade  a 
hundredfold,  thereby  increasing  profits  tenfold.  Again, 
competition  off'ers  such  rewards  for  cheapening  the  cost 
of  any  product,  that  it  powerfully  stimulates  all  devices 
or  inventions  to  accomplish  that  end.  All  plans  for 
facilitating  the  o2:)erations  of  commerce,  and  all  im- 
provements in  the  character  of  manufactured  products, 
are  encouraged  by  competition  and  obstructed  by  the 
want  of  it.  Under  its  sway  manufactures  seek  the 
places  best  suited  for  economical  production,  and  mer- 
cantile business  centres  where  the  distribution  to  cus- 
tomers w^ill  be  most  expeditious.  Monopolies  will  lo- 
cate such  interests  wherever  whim  or  prescription  may 
dictate.  With  competition,  every  invention  for  \)vo- 
ducing  better  or  cheaper  staples,  all  improved  methods 
for  transacting  business,  and  every  device  for  lessening 
cost  are  quickly  seized  upon,  to  secure  the  gains  of  en- 
larged business;  without  it  all  such  improvements  may 
be  discarded  or  smothered  by  the  prejudice  or  interest 
of  those  commanding  the  market.  Under  competition 
commerce  is  active,  intelligent,  strong,  and  independent; 

10 


290  The  Railways  and  the  BepuUic. 

without  it  commerce  is  inert,  lifeless,  stupid,  and  un- 
healthy. This  is  simply  repeating  truisms ;  but  they 
must  be  made  prominent  when  railway  advocates  sug- 
gest that  free  competition  is  an  evil  to  be  suspended  or 
abolished. 

There  is  similar  occasion  to  reassert  another  princi- 
ple which  belongs  to  the  alphabet  of  commercial  sci- 
ence. Legitimate  competition  never  requires  the  sale 
of  merchandise  or  the  performance  of  services  at  a  loss. 
Mr.  Fink,  in  his  testimony  before  the  Senate  Commit- 
tee in  1883,  made  a  distinction  between  legitimate  and 
ruinous  competition.  The  distinction  is  important,  al- 
though Mr.  Fink's  application  of  it  is  questionable.  As 
the  sole  aim  of  competition  is  increased  gains,  by  the 
expansion  of  business,  the  policy  which  expands  busi- 
ness by  reducing  prices,  so  that  every  increase  involves 
a  greater  loss,  is  not  competition  at  all ;  and  a  little 
examination  will  show  the  nature  of  the  difference. 
The  man  who  gives  away  a  horse  or  a  barrel  of  sugar, 
to  prevent  his  rival  in  trade  from  selling  them,  does 
not  take  counsel  of  competition.  No  merchant  will  at- 
tack his  rivals  by  doing  business  at  a  loss,  unless  he 
hopes  either  to  drive  them  out  of  business  or  to  force 
them  into  a  combination  to  sustain  prices.  Such  ruin- 
ous rivalry  is  only  resorted  to  where  free  and  natural 
competition  is  impeded,  or  has  so  narrow  a  basis  as  to 
make  combination  or  consolidation  possible.  It  is  a 
universal  law  that,  in  proportion  as  the  basis  of  com- 
petition is  broad  and  unlimited,  the  pushing  of  rivalry 
to  the  extent  of  loss  is  impossible.  Take  the  case  in 
which  competition  is  most  universal.  The  farmer  has 
seven  millions  of  competitors  in  this  country  in  supply- 
inir  the  markets  of  the  world  with  breadstuffs.     Did 


Competition  and  Combination.  291 

any  one  ever  hear  of  a  farmer  cutting  clown  the  market 
price  for  grain,  in  order  to  prevent  a  rival  from  making 
a  sale  ?  In  a  city  where  there  are  a  hundred  merchants 
engaged  in  the  same  line  of  trade,  it  would  be  absurd 
for  one  of  them  to  give  away  a  quarter  or  a  tenth  of 
the  cost  of  his  goods,  out  of  rivalry  with  his  competi- 
tors. He  will  labor  and  scheme  to  bring  his  prices 
down  to  the  lowest  level  consistent  with  a  narrow  mar- 
gin of  profit ;  but  there  he  will  stop.  It  is  only  where 
there  are  a  few  competitors  that  the  policy  of  selling 
below  cost  is  resorted  to ;  and  its  purpose  is  invariably 
to  force  rivals  out  of  trade,  or  into  a  combination  to 
maintain  artificial  rates.  The  law  of  trade  is  that  free 
and  general  competition  always  brings  the  price  of 
commodities  into  the  closest  relation  with  their  cost; 
and  whatever  instances  may  be  cited  of  rivalry  that 
has  reduced  prices  below  cost,  it  will  invariably  be 
found  that  it  was  not  the  result  of  legitimate  com- 
petition, but  was  practised  where  competition  was 
limited  and  obstructed  for  the  purpose  of  suppress- 
ing it. 

Notwithstanding  the  recent  teachings  of  the  railway 
advocates,  these  principles  apply  to  transportation,  as 
directly  and  forcibly  as  to  any  mercantile  or  manufact- 
uring interest.  In  observing  their  application  to  the 
railway  business,  the  first  question  is,  how  far  the  prin- 
ciple of  competition  prevails  in  railway  operations.  In 
the  criticisms  which  have  been  made  upon  the  railway, 
it  has  been  very  common  to  hear  them  called  monopo- 
lies— a  term  which  the  defenders  of  the  corporations 
pronounce  demagogical  and  unjust,  or,  as  one  writer  of 
more  than  ordinary  courtesy  put  it,  "produced  by  mis- 
information spread  by  the  politicians  and  a  portion  of 


292  The  Railways  and  the  Republic. 

tlie  press."  Whether  there  is  truth  in  the  charge  of 
monopoly  depends  on  the  question,  how  fully  the  prin- 
ciple of  competition  is  allowed  to  work  in  the  conduct 
of  railways,  or  how  far  it  is  disturbed  or  suspended. 
The  character  of  the  railway  as  a  monopoly  is  very 
easily  determined,  by  applying  a  standard  furnished  by 
one  of  the  most  extreme  advocates  of  the  present  rail- 
way system.*  He  declared  that  the  railways  are  not 
monopolies,  because  they  lack  "  that  absolute  and  ex- 
clusive proprietorship  which  is  the  decisive  criterion 
of  monopoly."  Absolute  and  exclusive  proprietorship 
of  any  traffic  being  the  decisive  criterion  of  monopoly, 
it  seems  necessary  to  inquire  how  for  it  may  be  asserted 
of  the  railways,  before  confessing  that  it  is  unjust  to 
call  them  "  monopolies."  It  is  certain  that  the  railways 
practically  have  absolute  and  exclusive  proprietorship 
of  their  tracks.  The  state  having  established  a  public 
highway,  to  be  improved  and  operated  by  the  railway 
corporation,  the  corporation  has  obtained  a  monopoly 
of  transportation  over  that  highway.  It  is  as  if  a  turn- 
pike corporation  were  empo\vered  to  exclude  all  vehi- 
cles from  its  highway,  save  those  which  itself  should 
furnish.  Of  the  justice  and  legality  of  this  exclusive 
and  absolute  proprietorship,  discussion  may  be  reserved 
for  the  future.  It  is  sufficient  to  note,  at  this  point, 
that  under  the  present  system  every  railway  in  the 
land  possesses  a  monopoly  in  transportation  over  the 
line  which  the  state  has  granted  to  it.  The  essence  of 
a  monopoly  is  its  ability  to  prevent  competition.  The 
burdens  which  it  lays  on  the  public  may  be  mild  and 
easy,  or  may  be  onerous  and  grinding;  but  the  essen- 
tial nature  of  a  monopoly  is  its  ability,  by  whatever 

*  C.  S.  Patterson,  Princeton  lievieic,  January,  1884. 


Competitioji  and  Combination.  293 

means,  to  suppress  or  avoid  competition  in  its  business. 
In  other  words,  where  there  is  no  com2?etitioii^  there  is 
either  active  or  passive  monopoly  ;  where  free  competi- 
tion exists,  inono'pohj  is  impossihle. 

There  is  no  doubt  that  competition  has  an  influence 
over  railway  policy  and  rates ;  but  it  is  no  less  certain 
that,  as  railways  are  now  managed,  there  are  some  im- 
portant departments  of  traffic  in  which  competition  has 
no  direct  influence.  The  railways  have  no  monopoly 
over  transportation  as  a  \vhole ;  but  each  railway  has  a 
monopoly  over  the  transportation  on  its  own  line,  and 
the  attempt  of  the  railways  is  to  establish,  by  combin- 
ing their  exclusive  privileges,  a  practical  monopoly  over 
all  traffic  that  cannot  advantageously  take  other  routes. 
Every  railway  is  free  to  do  what  it  pleases  with  its 
local  traffic.  It  may  charge  five  times  as  much  in  pro- 
portion to  distance  as  it  does  from  competing  points, 
as  in  the  case  of  Winona  and  Memphis;  it  may  assess 
upon  the  business  any  rate  which,  in  its  judgment  or 
whim,  "the  freight  will  bear;"  or  it  may  charge  to  the 
local  point  the  full  rate  for  hauling  it  through  the  local 
station  to  the  terminus  of  tlie  road,  and  the  local  rate 
for  hauling  it  back  again,  as  has  been  done  by  both  the 
Central  and  Nortliern  Pacific  roads.  This  local  busi- 
ness, however  small  at  eacli  station,  is  vast  in  the  ag- 
gregate. It  is  probable  that,  of  all  the  railway  traffic 
in  the  country,  there  is  not  five  per  cent,  that  does  not, 
at  some  point,  experience  this  absence  of  competition. 
The  manufacturer  whose  works  are  located  where  two 
or  more  railways  compete  for  his  business,  may  not  feel 
it  on  the  sliipment  of  his  products ;  but  the  raw  mate- 
rial from  which  the  product  is  made,  the  coal,  ore,  pig- 
iron,  or  cotton,  has  felt  it  somewhere.     The  shipments 


294  The  Railways  and  the  liejpublic. 

of  grain  from  the  Western  cities  often  get  the  full  bene- 
fit of  competition ;  but  the  grain  has  suffered  the  effect 
of  exclusive  control  at  the  local  station  where  it  was 
first  shipped,  and  where  the  rate  for  carrying  it  a  hun- 
dred or  two  miles,  to  the  nearest  competitive  point,  may 
be  greater  than  the  charge  for  carrying  it  from  that 
competitive  point  to  the  seaboard,  1000  or  1200  miles 
away.  The  shipper  who  starts  freight  at  local  points 
has  no  check  upon  the  absolute  rule  of  the  railway, 
save  as  it  is  influenced  by  considering  what  the  freight 
will  bear,  or  by  the  more  remote  apprehension  that  the 
competition  of  capital  may  construct  a  parallel  line  to 
share  its  business  at  way  stations.  Neither  of  these 
considerations  has  ever  been  known  to  prevent  dis- 
crimination. The  work  of  actually  present  or  impend- 
ing competition  cannot  be  done  by  the  expectation  that 
it  may  arise  in  the  future. 

While  competition  is  almost  excluded  from  the  va.^t 
volume  of  traffic  at  local  points,  its  operation  on  all 
other  business  is  suspended  in  proportion  to  the  suc- 
cess and  permanence  of  the  pooling  combinations,  into 
which  nearly  every  important  railway  in  the  country 
has  entered.  The  pools  have  not  been  able  to  abol- 
ish competition  altogether ;  and  it  is  impossible  to  as- 
certain on  what  proportion  of  the  railway  traffic  of  the 
country  they  have  at  any  time  succeeded  in  suspend- 
ing it.  But  we  know  that  the  union  of  the  railways 
in  pooling  combinations  has  for  its  purpose  the  sus- 
pension of  direct  and  natural  competition  between 
them.  The  instances  in  which  these  pools  have  been 
established  on  a  firm  basis,  and  have  controlled  the 
traffic  pooled  for  a  series  of  years,  show  their  character 
and  tendency.    The  petroleum-carrying  pool, which  built 


Competition  and  Combination.  295 

•up  the  Standard  Oil  Company;  the  anthracite  pool, 
which  has  broken  down  independent  shippers,  and 
charges  more  for  fuel,  almost  at  the  mouth  of  the  mine, 
than  two  or  three  hundred  miles  away ;  the  live-stock 
pool,  which  sustained  the  eveners'  discrimination,  and 
deprives  the  public  of  the  economy  in  transporting 
dressed  beef;  the  Pacific  Railway  pool,  which  main- 
tains the  "  special  contract "  iniquity — all  these  show 
how  the  successful  and  permanent  workings  of  pools 
abolish  competition,  and  what  abuses  and  evils  fol- 
low when  competition  is  abolished.  One  of  the  ablest 
attempts  to  represent  competition  as  still  regulating 
railway  traiSc  was  made  in  a  magazine  a  year  or  t\vo 
ago/'*  It  is  valuable,  not  only  for  its  proofs  of  the 
beneficial  results  of  natural  competition,  but  also  as 
showing,  in  spite  of  the  writer's  indisposition  to  make 
the  fact  prominent,  that  the  present  railway  system 
perpetually  aims  to  hamper  and  obstruct  every  active 
form  of  its  influence.  He  first  points  out  how  the  com- 
petition of  capital  is  felt  in  building  new  lines,  when- 
ever the  profits  of  railways  exceed  those  of  other  in- 
vestments. If  this  is  a  regulative  influence,  what  is  to 
be  said  of  the  present  policy  of  the  railways  to  crush 
out,  absorb,  or  buy  off  this  form  of  competition  when- 
ever it  becomes  active  ?  Nor  does  this  writer  observe 
how  this  remedy  has  often  amounted  simply  to  creat- 
ing two  tracks  where  one  would  suflSce,  witliout  afford- 
ing any  relief  against  discrimination  in  local  traffic. 
The  aim  of  railway  reform  is  not  to  restrict  the  earnings 
of  capital,  but  mainly  to  prevent  abuses  and  injustice, 
which  are  of  no  benefit  to  the  capital.    The  competition 

*  "  The  Railway  and  the  State,"  G.  L.La.ns'mg, Mrth American lieview, 

May,  1884. 


296  The  Bailways  and  the  Repxiblic. 

of  23arallel  lines  and  of  water  routes  is  pronounced  by 
the  same  writer  "  the  surest  possible  guarantee  of  the 
lowest  rates  and  the  best  service."  There  is  some 
truth  in  this,  but  the  extraordinary  instances  of  discrim- 
ination against  localities,  noticed  in  the  early  part  of 
this  work,  have  shown  us  that  the  competition  of  par- 
allel routes  only  protects  those  directly  reached,  and 
imposes  a  burden  on  others.  But  does  not  the  ad- 
mission that  this  form  of  competition  is  important  to 
the  public  interests  amount  to  a  confession  that  the  ef- 
forts of  railway  managers  for  ten  years  past  to  suspend, 
by  all  means  in  their  power,  the  competition  of  parallel 
railway  lines,  and,  by  their  combined  strength,  to  neu- 
tralize the  competition  of  water  transportation,  are 
against  public  policy?  If  such  competition  is  bene- 
ficial to  the  public  interests,  and  affords  "  the  surest 
possible  guarantee"  against  excessive  charges,  can  the 
banding  together  of  all  the  important  railways,  wher- 
ever their  contact  would  naturally  produce  competition, 
for  the  sole  purpose  of  abolishing  tliat  guarantee,  be 
less  than  a  public  danger  ? 

We  are  next  confronted  with  a  fanciful  theory,  that 
"markets  that  are  common  to  various  points  of  pro- 
duction or  supply  control  the  rates  from  all  these  points, 
by  the  competition  which  may  exist  with  any  one  of 
them.  The  lowest  rate  to  the  market  by  any  one  route 
controls  the  rates  by  all  the  routes."  This  is  explained 
to  mean  that  if  any  one  of  half  a  dozen  places  can,  by 
commercial  nearness,  supply  a  market  with  merchandise 
at  cheaper  rates  than  other  places,  it  is  necessary  for 
the  railways  to  reduce  rates  to  the  other  places,  so  that 
they  shall  be  equal  to  all.  This  is  so  far  from  being 
true  as  a  rule  that,  although  some  railway  practices 


Competition  and  Comlination.  297 

might  be  cited  to  support  it,  we  should  hardly  discuss 
it  seriously,  had  it  not  been  suggested  also  by  Messrs. 
Fink  and  Atkinson.  Having  the  support  of  their 
authority,  it  may  be  regarded  as  illustrating  the  pre- 
vailing tendency  of  the  railways  to  ignore  the  cost  of 
service  as  a  consideration  in  freight  rates.  New  York 
and  Philadelphia  can  act  as  entrepots  for  the  agricult- 
ural interests  of  Ohio,  at  less  cost  for  transportation 
than  Charleston  or  Savannah,  but  this  is  no  reason 
why  the  railways  should  attempt  to  put  them  all  on  an 
equality,  by  making  the  same  rates  to  all.  Nor  can 
they  do  so,  if  the  rates  to  the  former  ports  bear  any 
reasonable  proportion  to  the  cost  of  service.  Mr.  Lan- 
sius:  furnishes  his  own  reductio  ad  ahsurdam.  in  the 
assertion  that  if  the  cost  of  production  of  grain  were 
the  same  in  Dakota  as  in  Germany,  the  rate  of  freight 
on  taking  the  products  of  the  two  countries  to  the  Eng- 
lish market  would  be  the  same.  This  is  a  surprising 
reversal  of  the  relations  of  cause  and  effect.  AVhy  is 
the  cost  of  producing  grain  less  in  Dakota  than  in 
Germany?  Labor  is  dearer,  the  rate  of  interest  on 
capital  much  higher,  and  the  cost  of  implements  no 
less.  The  one  condition  that  enaldes  Dakota  to  pro- 
duce grain  in  competition  with  Germany  is  that  land  is 
cheaper.  But  why  is  the  land  cheaper?  Simply  be- 
cause it  is  farther  from  market,  and  the  cost  of  trans- 
porting its  products  to  consumers  is  greater,  so  that 
the  products  are  "worth  proportionately  less.  INIr.  Lan- 
sing's proposition  needs  to  be  reversed.  He  should 
have  said,  that  if  the  rate  for  transporting  grain  could 
be  made  the  same  from  Dakota  as  from  Germany,  land 
would  be  as  dear,  and  therefore  the  cost  of  production 
as  high,  in  the  Western  States  as  in  Europe.    Certainly 


298  The  Hallways  and  the  Bepuhlio. 

the  cost  of  transportation  cannot  be  made  the  same, 
unless  by  violent  interference  with  the  laws  of  trade, 
such  as  is  practised  in  some  degree  wherever  this  theory 
is  applied.  "  The  rates  from  Bristol,  Liverpool,  Cardiff, 
and  Newport,"  says  the  manager  of  the  Great  Western 
Eailway  of  England,  as  quoted  by  Mr.  Lansing,  "  have 
to  be  fixed  so  as  to  enable  them  to  compete  with  Glou- 
cester." Not  unless  the  conipetition  rests  on  the  nat- 
ural basis  of  equal  advantages.  There  is  no  obligation 
to  do  it  on  behalf  of  the  stockholders,  if  the  rates  tall 
below  the  cost  of  service  on  the  more  circuitous  routes, 
for  that  is  simply  throwing  away  the  corporation's 
money.  There  is  no  obligation  to  do  it  on  behalf  of 
the  public,  for  it  is  not  the  duty  of  the  railway  to  bring 
Cardiff  as  near  to  Birmingham  as  Gloucester  is.  It  is 
for  the  public  advantage  to  have  commerce  transacted 
by  the  most  direct  and  economical  routes.  Political 
economy  abhors  the  waste  of  human  effort  in  ti'ansport- 
ing  merchandise  a  greater  distance  than  is  necessary,  as 
much  as  nature  abhors  a  vacuum.  The  theory  of  put- 
ting all  markets  on  a  dead  level  of  equality,  without 
regard  to  distance,  can  spring  only  from  the  vicious 
practice  of  disregarding  the  actual  cost  of  service.  Mr. 
Lansing's  idea  of  the  competition  of  markets  as  affect- 
ing railway  rates  involves,  as  a  premise,  the  suspension 
of  natural  competition  in  transjiortation. 

Mr.  Lansing  concludes  his  account  of  the  work  of  com- 
petition among  the  railways  by  an  important  and  use- 
ful statement,  showing  the  extent  to  which  earnings  have 
been  increased  by  the  expansion  of  business,  when  com- 
petition has  reduced  rates.*     But  he  omits  to  state  the 

*  Mr.  Lansing  compares  the  earnings  of  four  trunk-line  roads  in  1875 
and  in  1880 ;  and  the  earnings  of  tlie  Central  Pacific  in  1877  and  in 


Competition  and  Comlination.  299 

fact  whicli  is  really  the  key  to  the  whole  discussion; 
that  such  reductions  of  rates  are  always  the  result  of 
direct  competition  with  other  routes.     This  exposition 

1882.  In  the  case  of  the  trunk  lines,  a  reduction  of  25  per  cent,  in  the  aver- 
age rate  brought  an  increase  in  tonnage  of  G9  per  cent,  and  an  increase 
in  the  net  earnings  per  mile  of  road  of  47  per  cent.  To  the  Central  Pa- 
cific, a  reduction  of  33  per  cent,  in  rates  brought  an  increase  in  tonnage 
per  mile  of  47  per  cent.  The  general  operation  of  the  principle  can  be 
shown  more  fully  by  a  comparison  extending  over  a  time  so  long  that 
the  varying  circumstances  of  successive  years  will  be  eliminated  in  the 
average  results.  For  this  purj^ose  the  following  table  is  compiled  from 
the  reports  in  "  Poor's  Manual,"  giving  for  the  Pennsylvania,  the  New  York 
Central,  and  the  Erie  Railways,  for  four  periods  of  five  years  each,  their 
average  rate  per  ton-mile,  the  aggregate  tonnage  carried  one  mile,  the 
gross  and  net  freight  earnings,  and  the  profits  on  freight  per  mile  of 
road : 

,,.,     ^  Rate  per  Agjjrcgate  Gross  freight  Net  freight  Profit 

Miicnge.  tQii.iuiie.  ton-mileage.          earnings.            earnings.  per  mile. 

1S55-59 lero  $2.51  462,283,681  fn.CC.V'!)  $5,538,063  $3460 

1865-09 2204  2.3T  1,1588,98'.),  433            35,802,734  10,212,493  441T 

1ST5-T9. 2956  O.OC  4,695,055,078            45,100,293  15,185,723  5092 

1380-84 3260  0.81  6,990,801,870           50,835,191  19,972,049  5905 

Similar  results  are  seen  in  the  following  summary  of  the  rate,  aggregate 
volume  of  freight,  and  gross  earnings  of  the  six  leading  Western  railways, 
known  as  Granger  roads,  for  the  periods  from  1870  to  1874  inclusive  and 
1880  to  1884,  compiled  from  "  Poor's  Manual :" 

Kate  per  tou-mile.        Aggregate  ton-mileage.  Gross  earnings. 

1870 ?2.42  1,234,078,291  $29,919,953 

1S71 2.50  1,233,0.')S,058  30,947,254 

1872 2.53  1,337,038,003  31,074,609 

1873 2.13  1,719,496,090  37,029,776 

1874 2^  1.851.64.5,824  40,004,035 

Averages $2.30  l,477,r83,3Sl  $33,715,138 

ISSO $1.2C  4,M4,409,655  $.'57,551,693 

1831 1.42  4,435,202,005  0.'!,007,705 

1882 1.36  5,041,330,034  08,792,350 

1883 1.30  5,708,173,429  7.5,504,744 

1SS4 1.2.'S  5,940,110,011  74,.S.^)3,290 

Averages $l.S-.i  6,145,857,027  $07,853,909 

Thus  it  is  a  general  law  that  the  reduction  of  rates  under  competition 
gradually  brings  increased  prosperity  to  the  roads  l)y  the  enlargement  of 
business.  In  the  case  of  the  trunk  lines  this  process,  in  twenty-five 
years,  reduced  the  average  rate  by  08  per  cent.,  but  it  cx2)andcd  the 
net  freight  earnings  per  mile  of  road  by  72  per  cent.  In  the  case  of  the 
Granger  roads  the  reduction  of  the  rate  by  40  per  cent,  in  a  period  of  ten 


300  The  Railways  and  the  Republic. 

of  the  true  railway  prosperity  which  comes  from  com- 
petition, is  convincing,  and  is  a  valuable  contribution 
to  the  discussion  of  the  railway  problem.  Its  value 
lies  in  the  proof  that  only  the  pressure  of  competition 
brings  this  kind  of  prosperity  to  the  railways.  There 
may  have  been  somewhere  in  the  country,  as  Mr.  Lan- 
sing seems  to  thinlc,  a  railway  board  so  liberal  in  its 
vie'ws  that,  without  external  pressure,  it  established  for 
its  traffic  rates  which  in  the  first  instance  would  be 
ruinous,  solely  in  the  expectation  of  enhanced  earnings 
from  the  future  increase  of  business.  But  such  cases  are 
certainly  too  rare  to  affect  the  general  statement,  that  the 
policy  of  what  is  virtually  the  entire  railway  manage- 
ment of  the  country  is  to  stop  this  reduction  of  rates 
by  suspending  competition,  and  that  for  this  purpose 
pooling  combinations  have  been  formed  embracing  all 
the  parallel  and  competing  lines  between  the  Sierra 
Nevadas  and  the  Atlantic  coast. 

In  tliis  respect  it  cannot  be  said  that  railway  com- 
panies are  exceptionall}^  short-sighted  in  their  selfish- 
ness. No  business  man  holdino-  exclusive  control  of 
his  trade  will  reduce  his  margin  of  profits  for  the  sake 
of  expanding  his  sales.  However  intelligent  and  far- 
years  expanded  gross  earnings  100  per  cent.  These  figures  sliow  that  a 
reduction  of  rates,  accomplished  by  economy  in  working  the  roads  and 
by  narrowing  the  margin  of  profits,  brings  its  reward  to  the  raih'oads  in 
the  increased  volume  of  tonnage.  In  this  case  it  is  indisputable,  as  Mr. 
Crafts  says,  "  that  an  increase  in  the  profits  of  the  rn,ilroad  is  not  at  the 
expense  of  the  community,  but  is  an  accompaniment  of  the  general  in- 
crease of  wealth  which  has  been  made  possible  by  the  lower  rates  of  trans- 
portation."' But  it  is  also  important  to  bear  in  mind  that  this  is  a  very 
diflTerent  kind  of  prosperity  from  that  which  the  prevailing  railway  policy 
aims  at,  when  it  forms  artificial  obstacles  to  the  reduction  of  rates,  and 
establishes  arbitrary  tariifs,  suspending  the  influence  of  competition, 
which  has  benefited  the  public  and  the  railways  alike. 


Competition  and  Comhination.  301 

sighted  tlie  merchant  or  manufacturer  may  be,  or  what- 
ever his  command  of  capital,  it  is  not  in  ordinary  com- 
mercial nature,  working  for  present  profit,  willingly  to 
surrender  that  profit  in  the  hope  of  getting  it  back 
after  many  days.  In  every  branch  of  trade  and  manu- 
factures experience  shows  that  the  man  who  can  keep 
up  his  prices  will  do  so  ;  but  it  also  shows  that  when 
competition  does  its  work,  reduction  w^  hich  would  have 
been  deemed  ruinous,  benefits,  in  the  end,  the  trade  it- 
self, as  well  as  the  purchasing  public.  From  roller- 
skates  to  railways,  and  from  telephones  to  steel  rails, 
this  law  has  been  demousti"ated  by  experience,  with  the 
certainty  of  a  proposition  in  geometry ;  yet,  in  view  of 
the  practical  ignorance  of  it  often  displayed,  it  might 
be  termed  the  pons  asinoriun  of  commercial  science. 
There  is  no  reason  to  suppose  that  it  needs  any  quali- 
fication in  its  application  to  the  conduct  of  railways ; 
but  the  disposition  of  the  railway  world  to  obstruct 
its  operation,  demonstrates  that  the  incentive  to  rail- 
way managers  for  the  increase  of  their  trafiic,  by  the 
voluntary  reduction  of  their  rates,  is  not  so  strong  that 
they  can  be  expected  to  pursue  this  policy  without  the 
pressure  of  external  competition. 

These  remarks  do  not  detract  from  the  value  of  Mr. 
Lansing's  convincing  demonstration,  that  the  general 
reduction  of  rates  caused  by  competition  has  rapidly 
developed  the  traffic  of  the  railways  and  the  resources 
of  the  country.  With  the  comment  that  this  enlarged 
railway  policy  is  only  produced  by  competition,  it  fur- 
nishes important  aid  towards  the  solution  of  the  rail- 
way problem.  It  is  a  matter  of  the  first  importance 
that  a  reduction  of  from  one  fouiih  to  one  tliird  in 
the  average  rates  of  leading  railways  during  five  years, 


302  The  Bailways  and  the  Re-piiblic. 

expanded  their  average  net  earnings  more  than  forty 
per  cent.  It  aj^pears,  therefore,  that  the  direct  and  in- 
direct forces  of  competition,  already  reviewed,  have  been 
so  general  as  to  exert  a  vast  influence  on  railway  man- 
agement. It  has  made  railway  officials  quick  to  per- 
ceive and  adopt  inventions  for  increasing  their  facili- 
ties or  improving  their  service.  It  has  made  them  ac- 
tive in  measures  that  will  enhance  their  business,  and 
prompt  in  adopting  new  economies.  More  than  this, 
wherever  business  has  been  reached  by  direct  compe- 
tition, it  has  forced  a  gradual  reduction  of  rates,  bring- 
ing with  it  a  vast  expansion  of  traffic,  and  benefiting 
alike  the  railways  and  the  public.  When  all  this  is 
duly  recognized,  the  fiict  remains  that  competition  does 
not  reach  the  local  ti'affic ;  that  it  has  been  artificially 
and  arbitrarily  abolished  by  the  few  railway  pools  that 
have  been  successful  for  any  considerable  time,  and 
that  the  prevalent  policy  of  railways  is  further  to  limit 
or  to  abolish  it.  The  good  wrought  by  competition, 
wherever  it  reaches,  proves  the  necessity  for  extending 
it  to  the  traffic  which  it  does  not  reach,  and  for  resist- 
ing all  efforts  to  abolish  it.  The  dangerous  forms  of 
inequalities  and  injustice,  which  have  been  practised 
wherever  it  was  suppressed,  forbid  that  the  power  to 
suppress  it  by  artificial  combinations  shall  be  extended 
or  continued. 

It  is  important  to  observe  that,  with  the  present  ten- 
dency to  combination,  the  livalry  which  springs  up  be- 
tween the  railways,  when  the  combinations  are  broken, 
is  not  legitimate  and  natural  competition.  The  natu- 
ral aim  in  competition  is  to  secure  increased  gain  by 
increased  traffic  ;  and  the  expansion  of  traffic  on  which 
every  increase  brings  additional  loss  is  utterly  incon- 


Convpetition  and  Comhination.  303 

sistent  with  such  an  aim.  In  fact,  iincler  the  present 
railway  methods,  such  legitimate  and  healthful  compe- 
tition is  unknown.  Mr.  Fink  very  properly  draws  the 
line  between  legitimate  and  ruinous  competition ;  but 
he  seems  to  take  the  ground  that  all  competition  be- 
tween railways  is  of  the  ruinous  variety.  And  it  is 
true  that  nnder  the  influences  which  he,  more  than 
any  other  man,  has  helped  to  establish,  the  rivalry  into 
which  the  railways  enter,  Avhen  any  of  them  break 
away  from  the  pools,  seems  to  be  as  to  which  can 
make  the  most  extreme  and  violent  reductions  in  rates. 
But  what  is  the  reason  of  this  ?  Are  such  eccentrici- 
ties the  fault  of  comjDetition  ?  The  true  reason  is  that 
one  or  more  of  the  contending  parties  is  striving  to 
force  the  others  to  accede  to  its  terms  in  the  combina- 
tion. The  blame  for  this  "  cut-throat  warfare"  lies,  not 
with  the  principle  of  competition,  but  with  the  policy 
of  railway  combination  struggling  for  monopoly.  When 
one  railway  strikes  what  is  called  ''a  decisive  blow," 
by  cutting  down  the  freight  rates  from  Denver  to  Chi- 
cago to  twenty-five  cents,  or  another  enters  a  railway 
combat  by  putting  the  price  of  emigrant  fare  from  New 
York  or  Philadelphia  to  Chicago  or  St.  Louis  at  a  dol- 
lar, it  is  not  competition,  but  a  means  of  enforcing  com- 
bination. The  purpose  of  such  reductions  is  to  impair 
or  threaten  the  revenues  of  rival  lines,  until  they  come 
to  terms,  abolish  competition,  and  establish  another  pool. 
The  difference  between  the  operation  of  the  machinery 
of  combination  and  that  of  legitimate  competition  ap- 
pears in  the  violent  and  unnatural  changes  caused  by 
one  influence,  and  in  the  steady  and  gradual  reduction 
which  takes  place  under  the  other.  One  railway  an- 
nounces a  reduction  of  one  tliird  on  its  tariff  rates  from 


304  The  B,ailways  and  the  RepuUic. 

a  competitive  point.  Its  rival  follows  witli  a  cut  of 
one  half;  and  the  policy  of  destroying  each  other's 
revenue  is  kept  up  until  one  or  the  other  is  driven  to 
terms.  This  is  not  competition,  nor  does  it  belong  to  the 
same  class  of  economic  causes.  True  competition,  striv- 
ing for  gain  by  reducing  the  cost  of  service,  is  gradual 
and  careful  in  its  operation.  The  idea  of  striking  off 
one  half  the  freiirht  char2;es  at  a  sino-le  blow  is  iucon- 
sistent  with  the  pursuit  of  profit,  which  is  the  motive 
in  competition.  Such  a  reduction  admits  but  two  pos- 
sible explanations;  either  the  railway  which  makes  it 
is  throwing  a^vay  its  stockholders'  money  to  injure  its 
rivals,  or  it  has  broken  away  from  a  combination  which 
maintains  excessive  rates.  In  either  case  the  extreme 
change  is  due  to  the  influence  of  combination,  past  or 
prospective ;  and  the  wasteful  strife  arises  fi'om  hostil- 
ity to  true  competition. 

This  is  no  mere  theory,  but  is  the  practical  lesson 
of  the  contests  which  have  impoverished  stockholders 
and  disturbed  business  for  the  past  ten  yeai'S.  This 
must  be  emphatically  insisted  on,  now  that  railway  ad- 
vocates are  urging  that  competition  threatens  ruin  to 
the  raih'oads  and  must  be  stopped.  It  is  time  to  check 
this  persistent  misrepresentation,  and  to  fix  it  in  the 
public  mind  that  the  railroads  are  suffering,  not  from 
competition,  but  from  their  self- chosen  methods  of 
forcing  each  other  into  combination.  It  may  be  shown 
that  every  railway  war  which  has  carried  rates  below 
cost  clearly  arose,  not  from  competition,  but  from  the 
effort  to  compel  comljinations  or  agreements,  which 
would  end  it.  The  first  railway  war  that  reduced 
freights  from  Chicago  below  the  cost  of  service,  was 
wao;ed  to  force  the  Baltimore  and  Ohio  Kailroad  to 


Competition  and  Combination.  805 

abandon  its  differential  rate  from  that  city  to  Balti- 
more ;  the  last  one  Avas  a  struggle  to  crush  or  prevent 
competition  in  the  local  traffic  of  the  Kew  York  Central 
and  Pennsylvania  Kailroads.  Every  one  of  the  inter- 
venino;  conflicts  had  a  similar  orio-in.  In  all  of  them 
warring  corporations  have  avowed  their  purpose  to 
force  their  rivals  to  terms,  in  the  combination  which 
they  are  equally  determined  to  establish,  or  to  destroy 
the  competition  of  the  ne^v  roads.  It  is  only  when  the 
question  of  regulation  by  the  state  is  at  issue,  that  these 
reckless  struggles  are  represented  as  showing  the  evils 
of  competition.  Such  a  representation  is  idle  and  point- 
less. "Cut-throat  warfare"  has  nothing  in  common 
with  legitimate  competition,  although  the  superficial 
resemblance  between  them  enables  the  misrepresenta- 
tion to  be  plausibly  made.  All  the  loss  and  insol- 
vency often  ascribed  to  competition  has  come  from  con- 
flicts undertaken  in  the  interests  of  combination,  as 
clearly  as  the  chill  comes  from  the  same  fever  as  the 
heat  which  follows  it. 

This  is  the  character  of  nearly  all  the  direct  rivalry 
among  railways  in  this  country,  since  the  policy  of 
combination  became  prevalent ;  and  Mr.  Fink's  state- 
ment of  its  ruinous  effects  applies  to  most  of  the  his- 
tory of  the  railways  in  late  years.  But  this  I'ivalry  is 
not  properly  called  competition.  Why  is  it  that  nat- 
ural and  legitimate  competition  has  been  practically 
unknown  among  the  railways  for  the  past  ten  years  ? 
Mr.  Fink  disclosed  the  cause  when  he  pointed  out  to 
the  senate  committee,  in  1883,  that  combination  among 
carriers  on  water  routes  is  impracticable,  because  a 
small  capital  is  enough  to  raise  new  competitors  against 
any  pool  that  may  be  established.     Competition  is  free 

20 


30G  The  Railways  and  the  Rejpublic. 

OD  the  lakes,  rivers,  and  canals,  because  there  are  many 
competitors  and  their  number  is  easily  increased.  Mi*. 
Fink  omitted  to  state  that,  among  these  competitors, 
the  policy  of  throwing  away  one  half  of  the  prevailing 
rates  for  transportation  at  a  single  reduction  is  un- 
kno\vn.  The  carriers  by  water  are  not  more  intelligent 
and  conservative  men  than  railway  officers ;  they  are 
simply  preserved  by  free  competition  from  reckless  ri- 
valry. On  the  other  hand,  the  possibility  that  the  rail- 
way can,  l)y  just  such  rivalry,  force  its  competitors  to 
terms  and  secure  the  suspension  of  competition,  incites 
it  to  ruinous  Vv'arfare  in  rates.  The  rule  holds  good 
in  all  branches  of  business.  One  competitor  among  a 
hundred  can  never  gain  anything  by  cutting  prices  to 
half  their  cost ;  one  among  two  or  three  may,  by  de- 
stroying the  business  of  his  rivals,  force  them,  either  out 
of  business,  or  into  combination  with  him  at  his  dicta- 
tion. Had  there  been  so  many  competitors,  in  the 
East-bound  railway  traffic  in  Chicago,  that  any  agree- 
ment on  rates,  beyond  that  naturally  fixed  by  the  cost 
of  transportation,  ^vould  have  been  impossible,  no  one 
would  ever  have  conceived  the  notion  of  beginning  a  war 
of  rates,  because  a  new"  road  undertook  to  charge  four 
cents  less  on  one  hundred  and  forty  miles  less  of  trans- 
portation. If  there  had  always  been  as  many  competi- 
tors in  the  railway  business,  at  the  leading  centres  of 
transportation,  as  there  are  in  the  lake  traffic,  the  con- 
flicts which  have  arisen  between  the  lines  would  have 
been  impossible,  simply  because  the  desired  combina- 
tion would  have  been  evidently  unattainable.  These 
suicidal  conflicts  aflford  no  aro-ument  a2:ainst  free  and 
permanent  competition,  but  they  condemn  tlie  ham- 
pered competition  and  the  policy  of  combination  which 


Competition  and  ComMnation.  307 

provoke  tnem.  To  assert  that  these  wasteful  struggles 
prove  the  ruinous  nature  of  competition,  is  the  same 
sort  of  logic  as  to  argue  that,  because  a  man  suffei-ing 
from  alcoholism  craves  spirits,  abstinence  is  an  evil 
practice. 

Such  unnatural  and  expensive  rivalry  between  the 
railways  is  harmful  alike  to  the  public  and  to  the  rail- 
ways themselves.  The  effect  of  violent  and  unexpect- 
ed changes  in  rates  of  transportation  is  to  disturb  le- 
gitimate business,  and  to  introduce  needless  uncertainty 
into  its  operations ;  while  to  the  railways  it  is  wasteful 
and  ruinous.  In  view  of  Mr.  Fink's  description  of  their 
disastrous  character,  I  am  unable  to  see  how  any  rail- 
way oflScial  who  engages  in  them  can  escape  the  cliarge 
of  throwing  away  the  money  of  the  shareholders.  No 
arjxument  is  needed,  where  one  half  or  two  thirds  of  the 
rates  are  cut  off  in  a  few  days,  to  show  that  either  the 
revenues  of  the  corporation  ai-e  recklessly  tlirown  a\\'ay 
or  that  the  original  rates  were  exorbitant.  Either  con- 
clusion condemns,  both  the  extravagant  rate-cutting  oc- 
casioned by  the  policy  of  combination,  and  the  combi- 
nations themselves  which  are  established  by  such 
means.  These  contests  injure  the  railways  more  di- 
rectly than  does  the  success  of  the  pools,  when  it  stim- 
ulates the  building  of  parallel  lines,  as  shown  in  anoth- 
er chapter.  But  both  together  show  the  essential  fact 
that  the  resort  to  sucli  contests,  for  the  sake  of  estab- 
lishing combinations  among  railways,  is  an  attack  upon 
their  true  prosperity;  while  natural  and  legitimate 
competition  secures  it  in  the  best  and  most  permanent 
way. 

No  less  important  is  the  relation  of  competition  to 
discriminations  between  individual  shippers.     In  the 


308  The  Railways  and  the  Bepublic. 

presence  of  active  competition,  any  serious  advantage 
given  to  a  shipper  is  at  the  expense  of  the  railway  and 
not  of  other  shippers.  True,  a  railway  manager  may 
give  an  exceptionally  low  rate  to  a  firm  which  he  de- 
sires to  foster;  hut  competitors  have  their  remedy  in 
turning  their  shipments  to  rival  routes.  While  com- 
petition operates  freely  among  all  the  transportation 
agencies  at  any  point,  so  that  all  are  seeking  to-  obtain 
freight  by  legitimate  inducements,  it  is  certain  that 
rates  will  be  brought  down  equally  to  a  moderate  mar- 
gin above  the  cost  of  service.  While  the  discriminat- 
ing railway  keeps  its  favors  to  iwoteges  within  that 
limit,  other  shippers  can  obtain  the  same  advantages 
elsewhere.  If  the  special  rate,  rebate,  or  drawback  re- 
duces the  freiirht  char2:e  below  the  cost  of  service,  that 
is,  indeed,  an  advantage  which  competing  roads  are  not 
obliired  to  o;ive ;  but  in  that  case  the  loss  and  burden 
must  be  borne,  not  by  the  rival  shij)pers,  but  by  the 
railway  itself  This  is  a  gross  abuse ;  the  fairly  earned 
money  of  the  stockholders  is  2:>aid  out  to  enrich  the  fa- 
vorite of  the  railway  manager;  and  both  the  public 
duty  of  equality  and  the  private  I'ights  of  the  corpora- 
tion are  violated.  But  the  most  dangerous  feature  of 
favoritism  is  qualified,  when  the  discriminating  official 
cannot  make  up  for  reductions  to  one  shipper  by  high- 
er rates  to  others.  AVhere  the  railway  has  exclusive 
control  over  transportation,  it  can  practice  effective  dis- 
crimination, b}''  maintaining  high  rates  against  the  dis- 
favored shippers.  In  the  presence  of  free  and  legiti- 
mate competition  by  other  routes,  this  power  is  lost. 
This  is  a  principle  of  the  utmost  importance,  as  indicat- 
ing a  remedy  for  individual  discriminations,  that  free 
competition  at  any  point  destroys  the  power  of  the  rail- 


Comjpetition  and  Conibination.  309 

way  to  impose  the  burden  of  its  discriminations  upon 
those  against  whom  it  discriminates,  and  allows  it  to 
maintain  them  only  at  a  loss  to  itself.  This  fact  not 
only  limits  the  burden  of  the  discrimination,  but  shows 
how  to  remove  the  entire  abuse.  Neither  the  rail- 
way corporation,  nor  the  official,  as  an  individual,  can 
afford  to  show  partiality  or  injustice  in  rates,  where 
competition  requires  them  to  seek  all  the  business  they 
can  get;  and  shippers,  if  treated  unfairlj'-,  are  free  to 
take  another  route.  Such  a  course  will  diminish  its 
earnings,  destroy  its  popularity,  and  strengthen  its  ri- 
vals. Here  is  the  key  to  the  whole  problem.  Free 
competition  makes  vital  discriminations  im])ossihle. 

It  is  true  that  there  have  been  instances,  at  so-called 
competitive  points,  of  the  maintenance  of  special  rates 
for  the  benefit  of  favored  individuals  or  firms.  But 
the  general  rule  has  asserted  itself  in  such  cases  also, 
since,  in  each  of  them,  the  discrimination  was  made 
possible  only  by  the  combination  of  all  the  railways 
engaged  in  the  traffic  to  suspend  competition.  Instead 
of  the  pooling  practice  preventing  discriminations,  as 
alleged  by  Mr.  Fink  and  others,  its  most  successful 
Avorkings  have  been  where  the  union  of  the  railways 
upheld  discriminations,  which  would  have  been  imj^ios- 
sible  if  competition  had  not  been  abolished.  A  signal 
instance  of  tlie  suspension  of  competition  by  the  pools, 
disclosing  their  relation  to  discriminations,  is  shown  in 
the  difference  between  the  live-stock  and  grain-carrying 
rates  from  Chicago  to  the  seaboai'ds.  The  railway  pool 
has  never  Ijeen  able  permanently  to  destroy  comjietition 
in  carrying  grain.  Its  inability  to  control  water  routes, 
and  the  ability  of  grain  shippers  to  hold  Ixack  their 
freight  for  favorable  rates  by  water,  have  rendered  the 


810  The  Railways  and  the  Rej^ublio. 

control  of  the  combication  over  that  traffic  irregular 
and  uncertain.  No  great  and  permanent  discrimina- 
tion, therefore,  can  be  established  by  the  raihvays  be- 
tween the  grain  shippers  at  Chicago,  But  the  traffic 
in  live-stock  requires  direct  and  inunediate  shipment. 
It  cannot  wait  for  the  slower  and  cheaper  water  route, 
but  must  use  the  expeditious  transportation  of  the  rail- 
ways. Hence  the  railways  were  able,  for  many  years, 
to  maintain  a  combination  which  gave  notorious  dis- 
criminations to  the  live-stock  "  eveners."  The  same 
principle,  established  by  comparing  hundreds  of  other 
cases  under  free  competition,  and  under  its  suspension, 
may  be  expressed  as  the  converse  of  the  preceding 
proposition.  The  suspension  of  competition  hy  raihcay 
combination  or  monopoly  renders  discriminations  pos- 
sible. 

Reinforce  these  two  propositions  with  the  law,  ex- 
plained a  few  pages  back,  and  the  argument  for  com- 
petition is  complete.  Let  it  be  seen  that  natural  and 
legitimate  competition  secures  the  prosperity  of  the 
competitors,  by  enlarging  the  volume  of  their  opera- 
tions; that  it  prevents  ruinous  and  extravagant  reduc- 
tions of  rates;  that  the  contests  of  the  railways,  during 
the  last  eight  3'ears,  have  been  results  of  combination 
and  not  of  competition,  and  that  the  transportation 
interests  on  the  lakes,  canals,  and  rivers,  subject  to  ex- 
actly similar  influences  as  the  railways,  except  that 
competition  is  permanent  and  secure,  are  free  from  these 
violent  and  abnormal  fluctuations  of  rates,  and  the  in- 
evitable conclusion  is  that  natural  and  leo'itimate  com- 
petition  would  have  saved  the  railways  from  the  evils 
which  they  liave  inflicted  on  themselves  for  nearly  a 
decade.     Suppose  that  competition  in  railway  traffic 


Competition  and  Combination.  311 

rested  on  as  permanent  and  universal  a  basis  as  it  does 
in  lake  transportation  or  in  the  dry-goods  trade.  Im- 
agine that  any  one  of  five  hundred  or  a  thousand  rail- 
way carriers  could  reach  all  shipping  points,  and  per- 
form the  service  at  rates  which  competition  would  fix. 
Is  it  not  evident  that  the  rates  would  constantly  bear 
a  due  relation  to  the  cost  of  the  service?  Would  any 
one  of  the  thousand  competitors  ever  conceive  the  pol- 
icy of  trying  to  secure  all  the  traffic,  by  offering  to  car- 
ry it  for  half  the  cost?  Or,  if  he  did,  what  would  he 
effect,  save  recklessly  and  wantonly  to  thro^v  away  his 
money,  or  that  of  the  capitalists  for  whom  he  acts?  A 
careful  study  of  these  considerations  will  prove  that,  if 
direct  and  free  competition  can  be  made  permanent 
and  imj^regnable  on  all  classes  of  railway  traffic,  it  \vill 
stop  railway  wars,  preserve  steady  and  remunerative 
rates,  and  confer  an  infinite  benefit  on  the  railway  sys- 
tem, by  the  enlargement  of  the  most  profitable  traffic. 
This  establishes  the  third  proposition  :  Free  and  legiti- 
mate competition  ivill  secure  the  Diost  lastinfj  'prosperity 
to  the  raihcays!'' 

*  Since  the  above  pages  were  written  Professor  Hadley's  woik  on 
"  Railroad  Transportation "  has  appeared,  in  which  the  author,  while 
showing  some  appreciation  of  the  abases  of  the  railv/ay  sj'stcm,  adopts 
the  railway  theory  that  competition  between  the  railways  will  not  bring 
rates  into  the  proper  and  due  relation  to  the  cost  of  service,  including  a 
fair  return  on  the  permanent  investment.  He  supports  this  plea  by  the 
usual  illustration  of  the  way  in  wliich  railways  will  cut  under  each  oth- 
er's rates,  until  they  are  reduced  to  a  ruinous  level,  without  jjcrceiving 
that  all  such  rivalries  are  but  methods  to  force  the  establishment  of  arbi- 
trary combinations ;  and  that  if  sucli  combinations  were  impossible,  the 
rivalry  would  cease  at  the  point  where  further  reductions  would  inflict 
loss.  lie  endeavors  to  show  that  the  investment  of  ca])it:d  dors  not  prac- 
tically act  as  an  clement  in  fi.xing  rates,  from  the  oft-cited  example  of 
bankrupt  railroads,  wliich,  as  he,  in  common  with  many  railway  tlieo- 
rists,  insists,  are  able  to  carry  rivalry  to  a  ruinous  point  without  reference 


312  The  Railways  and  the  Bepullic. 

These  propositions  point  clearly  to  the  true  aim  of 
all  efforts  to  reform  the  railway  system.  To  institute 
a  reform  for  all  time,  tlie  cause  -which  produces  the 
abuses  must  be  dug  up  by  the  roots,  the  power  to  car- 
ry them  out  must  be  abolished,  and  the  temptation  to 
use  that  power  must  be  removed.  The  cause  of  all 
these  abuses  is  the  irregularity  or  absence  of  competi- 
tion in  railway  traffic;  the  power  of  the  railway  offi- 
cials to  perpetrate  them  lies  in  their  ability,  through 
imperfect  competition,  to  maintain  discriminations  and 

to  the  necessity  of  earning  any  return  on  capital.  It  is  true  that,  under 
the  jH-esent  system,  the  element  of  interest  on  capital,  like  other  elements 
of  cost,  is  disregarded.  But  to  suppose  that,  under  a  system  in  Avhich 
only  natural  competition  was  possible,  the  bankrupt  roads  would  still 
discard  the  element  of  capital  in  fixing  their  rates,  is  to  assume  that  no 
one  owns  tire  bankrupt  roads.  The  fact  is  that,  when  a  railroad  passes 
out  of  the  hands  of  the  stockholders  by  bankruptcy,  it  becomes  the  prop- 
erty of  the  bondholders,  and  if  they  are  allowed  to  manage  their  proper- 
ty, tliey  will  have  the  same  interest  in  sustaining  rates  that  the  stock- 
holders of  a  solvent  road  have.  While  combinations  are  allowed  to  use 
their  power  to  freeze  out  weak  roads,  with  a  view  to  ultimate  consolida- 
tion, they  will  be  disturbing  elements.  But  if  combination  is  made  im- 
possible, the  cost  of  service  will  be  just  as  powerful  an  element  in  deter- 
mining their  rates  as  it  is  with  solvent  corporations  or  in  any  other  class 
of  business.  Professor  Hadley  further  supports  the  theory  that,  where 
there  are  "  large  permanent  investments,"  competition  will  not  stop  at 
the  point  of  loss,  by  the  course  of  prices  in  pig-iron  from  1873  to  187&. 
He  says:  "For  a  period  of  six  years  millions  of  tons  of  pig-iron  were 
produced  and  sold  below  cost."  The  illustration  has  one  fatal  defect, 
and  that  is  its  incorrectness.  The  i^rice  of  pig-iron  during  the  period  re- 
ferred to  was  below  cost  for  many  furnaces  that  were  old-fashioned  or 
disadvantageously  located,  and  such  furnaces  were  forced  to  go  out  of 
blast.  It  was  just  about  at  cost  for  most  of  those  which  kept  in  ojiera- 
tion ;  and  the  furnaces  of  the  newest  construction  and  most  approved 
appliances  made  a  slight  margin  of  profit,  even  during  the  period  of  de- 
pression. Ricardo's  theory,  which  Professor  Hadley  appears  to  think  is 
disproved  by  this  illustration,  is  confirmed  by  it.  The  works  which  could 
not  produce  iron  at  the  market  price  went  out  of  blast,  and  production 
fell  so  far  below^  consumption  as  to  produce  a  rapid  rise  of  prices  in 
1879. 


Convpetition  and  Combination.  313 

practice  abuses;  and  the  almost  irresistible  temptation 
lies  in  the  vast  wealth,  which  can  be  gained  by  manip- 
ulating rates  in  individual  interests,  and  in  the  great 
pressure  Vi\)oi\  honest  railway  managers,  under  existing 
methods  of  business,  to  maintain  abnormal  and  absurd 
discrepancies  between  the  rates  on  local  and  those  on 
competitive  traffic.  The  permanent  remedy  lies  in  the 
restoration  of  full,  free,  and  natural  competition ;  and 
the  aim  of  a  thorou<2:h  and  lastiuf?  reform  must  be  to  es- 
tablish  competition  so  that  it  can  never  be  overthrown. 
We  must  remove  the  causes  of  these  evils,  instead  of 
simply  prohibiting  them,  and  leaving  the  causes  to 
work,  either  in  secret  or  open  violation  of  the  law.  It 
is  well  to  forbid  a  hungry  man  to  steal ;  but  it  is  not 
wise  to  leave  him,  while  still  hungry,  in  custody  of 
food.  The  safest  way  is  to  remove  both  the  tempta- 
tion and  the  ability  to  commit  the  wrong. 

This  leads  us  to  reverse  the  conclusion  reached  by 
the  advocates  of  the  combination  theory,  that  the 
abuses  of  the  railway  system  are  produced  by  competi- 
tion, and  must  be  cured  by  combinations  between  the 
railways.  They  assume  that  the  pi'inciple  of  natural 
and  legitimate  competition  in  trade  does  not  apply  to 
the  railways;  that,  in  the  business  of  transporting 
freight  over  railwa3^s  by  steam,  there  is  something  pe. 
culiar  and  exceptional,  \vhicli  suspends  the  general  prin- 
ciples of  trade.  But  there  is  no  reason  for  imagining 
that  the  fundamental  laws  of  demand  and  supply,  and 
the  necessary  consequences  of  them  in  the  workings  of 
competition,  were  repealed  and  overthro^vn  by  the  dis- 
covery that  steam  could  draw  a  load  over  an  iron  track. 
These  laws  are  universal  and  unchangeable.  The  pe- 
culiarity of  the  railway  system  is  that,  while  the  mag- 


314  The  Railways  and  the  liepublic. 

nitude  of  its  influence  upon  trade  Avas  not  understood, 
it  was  alloAved  gradually  to  acquire  the  power  to 
suspend  or  partly  abolish  the  influence  of  competition. 
To  the  proposition  to  cure  the  abuses,  arising  from  the 
imperfect  and  stifled  condition  of  competition,  by  smoth- 
ering it  wholly  and  completel}',  the  reply  is  that  the 
remedy  does  not  lie  in  that  direction.  If  a  doctor 
treats  a  fever  by  aggravating  it,  so  that  the  patient 
presently  dies,  the  fever  is  removed  ;  the  patient  is  not 
benefited.  The  abuses  of  discriminations,  pools,  and 
the  manipulations  which  they  produce,  and  of  the  vio- 
lent and  wasteful  railway  wars  waged  in  the  interest 
of  combinations,  cannot  be  remedied  by  handing  over 
the  business  interests  of  the  country,  bound  hand  and 
foot,  to  the  unrestrained  sway  of  the  influences  which 
have  produced  such  evils.  The  only  natural  and  effect- 
ual reform  must  be  in  the  revival  of  that  unrestrained 
and  legitimate  competition,  which  has  been  practically 
unknown  in  railway  management  for  many  years,  and 
the  free  workinsrs  of  which  would  render  all  these  ab- 
normal  and  injurious  features  of  railway  business  im- 
possible. 

"The  best  possible  results  to  all  will  follow  where 
there  is  the  freest  operation  of  the  natural  forces  of 
competition."  This  is  the  concluding  sentence  of  Mr. 
Lansinfr's  article  in  the  Nortli  American  Review.  He 
intended  this  assertion  as  a  protest  against  interference 
with  the  railways  by  legislation.  But,  Avhatever  the 
ajjplication,  the  statement  is  pregnant  with  truth. 
The  free  operation  of  competition  will  rectify  the  in- 
equality of  charging  four  times  the  rate  to  one  point 
that  is  charged  to  another ;  it  will  prevent  the  build- 
ing up  of  monopolies  by  raihvay  rates;  it  will  give 


Competition  and  Comlination.  315 

shippers  a  prompt  aiul  sure  relief  from  discriminations 
adverse  to  their  interests;  it  will  forbid  the  improper 
application  of  the  rule  to  charge  "  what  the  freight  will 
bear;"  it  will  place  all  persons  on  a  practical  equality, 
and  make  it  necessary  for  carriers  to  treat  all  with  im- 
partiality ;  and,  finally,  it  will  abolish  the  vicious  and 
dangerous  forms  of  railway  rivalry,  by  making  the  com- 
binations at  which  they  aim  impossible.  All  the  evils 
which  have  sprung  from  imperfect  competition,  and 
from  the  tendency  towards  combination  which  exists 
as  a  consequence,  can  be  removed  by  fully  re-establish- 
ing competitioD,  and  giving  its  forces  as  complete  sway 
as  they  have  in  any  normal  and  healthful  department 
of  trade. 

How  shall  this  natural  and  legitimate  competition 
be  restored,  and  established  on  a  secure  and  permanent 
basis?  What  means  are  open  to  the  republic,  to  bring 
its  railway  system  under  the  same  healthful  and  legiti- 
mate laws  of  trade  as  those  which  control  lake  and  riv- 
er transportation  ?  If  it  can  be  shown  how  that  great 
and  beneficial  reform  can  be  effected,  and  the  forces  of 
competition  be  made  supreme,  not  over  a  part,  but  over 
the  whole  of  the  railway  traffic  of  the  nation^  the  pur- 
pose of  this  work  will  be  attained. 


CHAPTER  IX. 

THE   DISCUSSrOX    OF   REMEDIES. 

While  it  is  beyond  dispute  that  the  state  has  the 
right  to  regulate  the  railways,  and  that,  in  some  form, 
the  exercise  of  this  right  is  demanded  by  the  general 
welfare,  the  question  how  to  exercise  it  is  diiEcult,  and 
is  not  yet  fully  solved.  The  difficulty  lies  in  finding 
methods  of  holding  the  great  transporting  agencies  of 
commerce  to  their  public  obligations,  without  impairing 
their  practical  efficiency.  This  difficulty  has  indeed 
been  exaggerated  in  the  interests  of  the  railways.  And 
while  the  danger  of  interference  with  the  vast  railway  in- 
terests, and  of  hampering  their  work,  has  been  harped  on 
as  an  objection  to  such  legislation,  the  objection  has  been 
weakened  by  tlie  greater  danger  of  submitting  to  the 
present  railway  policy.  Yet  it  must  be  fairly  con- 
sidered, and  must  have  its  due  weight.  In  proj^osing 
measures  to  regulate  the  railways  it  should  be  borne 
in  mind  that  the  interests  involved  are  vaster  than 
were  ever  before  the  subject  of  commercial  legislation. 
These  interests  are  by  no  means  those  of  the  railway 
companies  alone.  The  rights  of  the  thousands  of  mill- 
ions of  railway  property  are  important,  but  not  more  so 
than  those  of  the  tens  of  thousands  of  millions  of  pri- 
vate property  and  business  capital  that  suffer  for  want 
of  such  legislation.  The  vastness  of  the  interests  con- 
cerned requires  a  cautious  and  thorough  study  of  the 


The  Discussion  of  Bemedies.  317 

subject,  not  only  by  legislators,  but  by  the  AvLole 
people.  But  the  magnitude  of  the  lesser  interest  can- 
not be  pleaded  against  the  protection  of  the  greater. 
The  rights  of  botli  the  railways  and  the  people  should 
be  fully  guarded ;  but  the  importance  of  caring  for  the 
welfore  and  prosperity  of  $4,000,000,000  of  railway  in- 
vestments is  not  greater  than  of  securing  the  rights  of 
$30,000,000,000  of  the  property  of  the  people. 

It  is  clear  that  legislation  which  would  hamper  or 
destroy  the  free  operation  of  the  railways  would  be  a 
public  misfortune.  What  is  wanted  in  the  interest  of 
the  people  is  greater  freedom  in  the  use  of  the  railways. 
One  serious  charge  against  the  prevalent  railway  policy 
is  that  their  own  acts  have  restricted  their  operations. 
It  may  be  doubted  whether  any  legislation,  which  is 
seriously  proposed,  would  hamper  their  freedom  nearly 
so  much  as  do  their  own  pooling  combinations.  It  is 
a  strong  commentary  upon  the  position  of  their  advo- 
cates that,  at  the  very  time  when  they  are  Avarning  the 
public  not  to  hamper  the  free  operations  of  the  railways 
by  legislation,  their  united  efibrts  are  exerted  to  restrict 
their  freedom  by  mutual  agreement;  and  they  are  seek- 
ino;  for  lecjislation  to  enable  them  to  make  the  restric- 
tion  complete  and  permanent.  It  is  public  policy  to 
make  the  railways  free  in  their  operation  under  the 
workings  of  natural  competition ;  and  this  is  just  the 
opposite  of  the  prevailing  railway  policy.  Legislation 
to  secure  the  public  rights  should  stop  only  the  exer- 
cise of  dangerous  and  illegal  powers;  and  its  main 
purpose  should  T)e  to  extend  and  secure  that  freedom 
in  the  use  of  the  railways  which  is  essential  to  their 
function  as  public  liighways. 

With  regard  to  the  legislative  power  which  should 


318  The  Railways  and  the  Republic. 

be  exerted  to  secure  tbis  purpose,  it  is  necessary  to 
distinguisli  briefly  between  the  province  of  the  nation 
and  that  of  the  state.     It  is  conceded  that  the  opera- 
tions of  a  railway  which  lies  within  a  state  are  solely 
under  the  power  of  that  state.     Most  of  the  railways 
are  chartered  by  the  state  in  which  they  operate;  they 
have  obtained  their  right  of  way  by  the  exercise  of  the 
sovereign  power  of  that  state ;  and  within  its  borders 
they  are,  under  our  constitutional  law,  subject  to  its 
legislation.     But  when,  as  most  important  railways  do, 
they  carry  on  their  operations  from  one  state  to  an- 
other, they  become  highways  of  inter-state  commerce, 
and  are  subiect  to  re2;ulation  by  Concrress  under  the 
national  constitution.     The  assertion  of  this  right  of 
Congress  has,  within  the  last  three  or  four  years,  been 
stigmatized  as  a  new  claim.     One  eminent  representa- 
tive of  a  leading  railway  has  attempted  to  show,  be- 
fore a  Cono;ressional  committee,  that  Cono^ress  has  no 
power  to  regulate  the  railways ;  but  his  position  was 
clearly  shown  to  be  untenable  by  the  authoi-ities  cited 
in  the  subsequent  debates.*     But  this  power  was  as- 
serted on  behalf  of  the  railways,  before  the  demand  for 
national  regulation  arose.     In  the  Granger  cases,  the 
attempt  of  a  state  to  regulate  trafSc  be3'(md  its  respec- 
tive borders  was  declared  by  the  railway  counsel  to 
be  unconstitutional,  because  Congress  alone  could  regu- 
late inter-state  conunerce.     ISTone  of  the  great  constitu- 

*  The  judicial  declarations  of  the  power  of  Congress  over  the  regula- 
tion of  inter-state  commerce  were  set  forth  clearly  and  exhaustively  in 
the  debates  of  last  winter.  They  cannot  be  repeated  in  tliis  work;  but 
those  who  wish  to  refer  to  them  can  find  them  properly  presented,  either 
in  the  speech  of  Mr.  Barksdale  in  the  House  (Congressional  Record,  48th 
Congress,  vol.  xvi.  p.  170),  or  that  of  Mr.  Kcuna  in  the  Senate  (ibid.  p. 
1429). 


The  Discussion  of  Remedies.  319 

tional  lawyers  engaged  in  those  cases,  whether  as 
counsel  or  judges,  questioned  this  power  of  the 
nation ;  but  tlie  decision  of  the  Supreme  Court  recog- 
nized greater  power  in  the  states  than  had  some- 
times been  thought  consistent  with  the  control  of  in- 
ter-state commerce  by  the  nation.  AVhile  the  chief- 
justice's  decision  incidentally  recognized  the  power  of 
Congress  to  treat  the  subject  of  inter-state  commerce  as 
a  whole,  he  also  upheld  the  power  of  any  state,  in  the 
absence  of  national  legislation,  to  regulate  such  traffic 
as  affects  its  citizens,  whether  the  transportation  ex- 
tends beyond  the  state  or  not.  This  practically  leaves 
the  whole  subject  under  the  control  of  united  legisla- 
tion by  all  the  states.  All  railway  traffic  either  origi- 
nates or  terminates  with  one  state  or  another.  If  all 
the  states  in  the  Union  should  pass  uniform  legislation 
to  regulate  railway  ti-affic,  none  of  it  could  evade  these 
laws  on  the  plea  that  it  is  inter-state  commerce.  That 
all  the  states  will  take  such  action  is  improbable.  On 
the  other  hand,  effective  and  thorough  regulation  by 
Congress  would  practically  reach  the  same  result. 
There  is,  indeed,  a  large  amount  of  railway  traffic  that 
does  not  cross  a  state  line.  But  it  is  upon  that  which 
traverses  two  or  more  states  that  the  most  serious 
abuses  are  practised.  K  such  traffic  were  fully  sub- 
ordinated to  public  rights,  the  wrongs  of  traffic  within 
state  limits  would  be  comparatively  of  slight  impor- 
tance. Let  discriminations,  combinations,  and  favorit- 
ism be  made  impossible  on  inter-state  traffic,  and  they 
will  not  be  maintained  to  any  great  extent  on  the  rem- 
nant of  the  railway  business. 

It  will  be  seen,  therefore,  that  either  national  legis- 
lation, or  the  general  action  of  the  states,  will  be  ade- 


320  The  Bailvjays  and  the  Repvhlic. 

quate  to  reach  the  case  if  wisely  drawn.  But  it  should 
also  be  borne  in  mind  that  the  influence  which  pro- 
duces such  action  from  one  power  will  be  sure  to  pro- 
duce it  from  another.  If  the  popular  demand  forces 
legislation  in  the  states  to  restrain  railway  abuses  or 
wholly  to  sweep  them  away,  the  same  cause  will  ob- 
tain similar  legislation  from  the  national  authority. 
Public  intelligence  and  the  public  will  must  eventually 
compel  practically  uniform  legislation,  by  the  state  and 
the  national  legislatures  alike.  Indeed,  the  measures 
already  introduced  in  Congress  and  in  the  state  legis- 
latures, and  passed  in  some  of  the  latter,  have  possessed 
the  same  leading  characteristics.  It  may  be  confident- 
ly predicted  that  whatever  legislation  public  opinion 
may  extort  from  Congress  will  be  substantially  adopted, 
under  the  same  influence,  in  most  of  the  states. 

But,  in  view  of  the  legal  principles  already  explained, 
it  may  be  asked  why  the  common  law  does  not  pro- 
tect the  public  suflficieutly.  The  question  is  pertinent, 
but  is  answered  by  the  experience  of  the  last  ten 
years.  The  common  law  is  sufficient  in  theory ;  but  it 
has  failed  in  practice.  The  decisions  forbid  discrimina- 
tion, even  for  the  benefit  of  the  connecting  lines  of  the 
railway  concerned;  affirm  the  right  of  all  persons  to 
equal  privileges,  even  if  they  are  rivals  of  the  railway 
in  the  transportation  business;  deny  that  the  largest 
shipper  is  entitled  to  the  lowest  rates;  they  vigorously 
denounce  pooling,  and  its  attendant  practices  of  divert- 
ino:  freis^ht  from  subordinate  roads  and  discrimiuatino; 
airainst  them  are  declared  illeixal  and  subversive  of  lus- 
tice.  But  pooling  is  nevertheless  the  universal  policy 
of  the  railways ;  discriminations  are  maintained,  both 
to  turn  freight  to  connecting  roads  and  to  keep  it  from 


The  Discussion  of  Remedies.  321 

rival  roads ;  favors  have  been  granted  in  rates  sufficient 
to  determine  the  control  of  the  trade,  and  thus  the 
fundamental  rules  of  the  common  law  have  been  nul- 
lified by  the  railways.  One  branch  of  business  has  es- 
caped them,  and  this  exception  is  significant  as  explain- 
ing why  the  common  law  fails  to  protect  the  public. 
The  express  companies,  after  a  hard  fight,  have  fully 
established  their  right  to  compete  in  their  business 
upon  any  railway  in  the  United  States.  The  fact  that 
none  but  corporations,  almost  equal  in  financial  strength 
to  the  railways  themselves,  are  able  to  assert  rights 
which,  in  our  political  system,  belong  to  all,  may  teach 
us  why  exactly  these  rights  in  the  case  of  private  citi- 
zens are  overridden  with  impunity. 

In  practice,  legal  i-emedies  against  railway  injustice 
can  be  applied  through  the  courts,  only  by  figliting  the 
railways  at  such  disadvantages  that  the  ordinary  busi- 
ness man  will  never  undertake  it  except  in  desperate 
cases.  Every  advantage  of  strength  and  position  is 
with  the  railways.  In  the  first  place,  the  business 
man  may  suffer  from  discriminations  long  before  he 
has  any  evidence  of  the  fact.  Finding  his  rivals  un- 
derselling him  in  distant  markets,  and  his  own  busi- 
ness dwindling,  he  may  suspect  that  this  is  the  work 
of  railway  fiivoritism.  But  the  burden  of  proof  is  on 
him,  if  he  seeks  a  legal  remedy,  and  the  fact  that  his 
favored  competitor  is  able  to  crowd  him  out  of  busi- 
ness does  not  prove  his  case.  The  common  law  per- 
mits a  man  to  sell  his  merchandise  at  a  loss  if  he 
chooses,  and  will  not  assume  that  the  cost  of  a  product 
has  not  been  reduced  by  new  economies  to  unprece- 
dented cheapness.  If  he  succeeds  in  proving  the  dis- 
crimination, he  still  has  an  antagonist  of  boundless  re- 

21 


322  The  Railioays  and  the  Bepyhlic. 

sources,  which,  if  really  discriminating  against  him, 
will  resort  to  delays,  technical  objections,  and  even  cor- 
ruption to  defeat  him.  The  merchant  or  manufacturer 
is  commonly  deterred  by  such  a  prospect  from  enter- 
ing into  litigation  ^vith  a  great  corporation.  But  sup- 
pose that  he  overcomes  these  difficulties,  what  does  he 
gain?  First,  he  can  obtain  an  injunction,  directing  the 
railway  to  discontinue  its  injustice.  This  might  be  of 
value,  but  that  a  new  injunction,  with  new  difficulties, 
is  required  to  meet  every  subterfuge  by  which  the  rail- 
way will  attempt  secretly  to  evade  the  order.  Then 
the  litigant  may  obtain  as  damages  the  excess  which 
he  can  prove  that  he  has  paid,  above  the  rates  allowed 
to  the  most  favored  shippers.  Such  damages  are  ut- 
terly inadequate.  On  the  one  hand,  the  plaintiif  can- 
not hope  to  prove  in  detail  a  tithe  of  the  instances  of 
discrimination  which  have  been  practised.  On  the 
other  hand,  the  amount  of  overcharges,  even  if  they 
were  all  legally  proved,  is  not  a  fair  measure  of  the 
damage  done.  In  such  cases  his  greatest  loss  is  in  the 
restriction  of  his  business,  just  as  the  main  profit  of 
the  favored  shipper  lies  in  his  power  to  expand  his 
trade  by  underselling  his  rivals.  Thus  Messrs.  Scofield, 
Schurmer  &,  Teagle  obtained  last  year  a  verdict  for 
$5000  for  the  excess  of  charges  on  50,000  barrels  of 
petroleum.  But  for  the  discriminations  against  them, 
thev  mvAit  have  sold  200,000  or  300,000  barrels: 
while,  by  discriminations  in  its  favor,  their  great  rival, 
the  Standard  Oil  Company,  was  enabled  to  sell  5,000,- 
000  barrels  or  more.  The  damages  in  this  case  would 
pay  but  a  part  of  the  plaintiff's  legal  expenses,  W'hile 
the  Standard  Oil  Company  could  well  afford  to  reim- 
burse the  railways  for  such  verdicts  every  month  in 


The  Discussion  of  Remedies.  323 

the  year,  for  the  maintenance  of  its  monopoly.  With 
such  odds  against  him,  the  private  litigant,  who  seeks 
justice  from  these  corporations,  may  read  over  the 
courts  the  iuscrijDtion  which  Dante  found  upon  the 
portals  of  hell,  "  Leave  all  hope,  ye  who  enter  here."  * 
Finally,  the  business  man  is  well  aware  that,  if  he 
bring  such  a  suit  he  will  arouse  the  enmity  of  the 
power  whose  friendship  is  the  first  condition  of  his 
success.  If  he  overthrows  one  form  of  injustice  b}^  a 
lawsuit,  he  will  soon  be  confronted  with  another,  de- 
manding further  litigation.  There  is  no  end  to  the 
ruinous  forms  the  contest  may  assume.  He  may  be 
obstructed  and  injured  in  ways  which  afford  no  tangi- 
ble ground  for  legal  proceedings.  The  side-tracks  from 
which  his  freight  is  shipped  may  get  out  of  repair;  a 
remarkable  scarcity  of  cars  may  occur  just  when  he  is 

*  "  The  damage  in  tliese  cases  of  secret  discrimination  is  not  merely 
tiie  diflFereuce  between  rates,  but  it  goes  deeper  than  that,  and  does  an 
injury  of  a  subtile  character  difficult  of  analysis,  and  under  the  rules  of 
evidence  still  more  difficult  of  a  specific  pecuniary  computation.  In 
the  Baltimore  case  which  I  have  cited,  there  was  complaint  that  the 
plaintiffs'  business  had  been  injured,  and  the  plaintiffs  offered  to  show 
that  a  difference  of  two  cents  on  the  hundred  pounds  of  sugar  was  not 
only  a  considerable  loss  of  profit  in  such  transactions,  but  that  a  competi- 
tor in  business,  enjoying  this  discriminating  rate,  would  gradually  absorb 
the  business  and  drive  his  rivals  out  of  the  market.  But  the  court  held 
that  this  evidence  was  too  remote,  and  refused  the  oflfer.  Now,  suppose 
that  tliis  discriminating  rate  had  been  lower  still,  it  is  a  matter  of  dem- 
onstration that  the  business  of  the  plaintiffs  might  have  been  utterly  de- 
stroyed, and  yet,  under  the  rule  of  damage  laid  down,  all  that  they  could 
recover  would  l)e  the  actual  difierence  between  rates.  Again,  systematic 
discrimination  of  this  sort  is  necessarily  a  corrupt  act.  It  is  not  bestowed 
without  some  corresponding  advantage  to  the  donor." — Hon.  J.  V.  Find- 
ley,  Congressional  Record,  48tli  Congress,  vol.  xvi.  p.  111.  Mr.  Fiiullcy 
might  have  added  that,  under  tliis  rule,  the  more  completely  discrimina- 
tion restricts  the  business  of  the  plaintiff,  the  less  damages  he  can  recover, 
until,  if  he  has  been  completely  shut  out  from  the  market,  he  can  recover 
nothing  at  all,  because  he  has  made  no  shipment. 


324  Tlie  Railways  and  the  BepuUic. 

ready  to  make  large  shipments ;  or  when  the  freight 
is  under  way,  the  mysterious  dispensations  of  railway 
providence  may  cause  it  to  encounter  a  blockade,  from 
which  it  will  be  extricated  weeks  after  it  should  have 
been  delivered  to  the  consignee.  All  these  dangers 
and  discouragements  are  well  understood  by  business 
men.  It  is  a  practical  maxim  among  them  that  to 
quarrel  with  the  railways  is  commercial  suicide.  In 
the  general  opinion  of  merchants  and  manufacturers, 
as  shown  by  their  acts,  it  is  better  to  accept  such  share 
of  business  prosperity  as  the  railways  will  allow  them, 
than  to  defy  the  railways  by  invoking  the  protection 
of  the  law  against  them.  This  may  not  be  manly  or 
independent.  It  has  already  been  remarked  that  the 
worst  result  of  corporate  supremac}^  is  the  demoraliza- 
tion and  cowardice  which  it  produces  among  business 
men.  It  is,  however,  a  prominent  fact  in  the  problem, 
and  at  once  proves  the  necessity  of  thorough  reform, 
and  explains  the  insufficiency  of  legal  remedies. 

Much  the  same  may  be  said  of  the  constitutional 
provisions  against  railway  abuses,  which  have  been  re- 
ferred to  in  another  chapter.  It  is  a  humiliating  con- 
fession to  make,  but  one  which  shows  the  magnitude 
of  the  power  with  which  legislation  must  measure  its 
strength,  that  the  constitutional  prohibitions  of  a  dozen 
states,  traversed  by  great  railway  lines,  against  discrimi- 
nations, rebates,  the  consolidation  of  competing  lines, 
the  granting  of  free  passes,  and  other  practices,  are  prac- 
tically waste  paper.  The  constitutions  of  California 
and  Pennsylvania  are  strikino-  illustrations.  Their  Ian- 
guage  is  clear  and  strong  enough,  if  enforced,  to  pre- 
vent nine  tenths  of  the  abuses  which  unregulated  rail- 
ways  practise.     Yet,  in    California,  the   rule    of  the 


The  Discussion  of  Remedies.  325 

Central  Pacific  Railway  over  commerce  is  nuchecked, 
the  commissioners  provided  for  in  the  constitution  are 
expensive  figure-lieads,  and  the  constitution, as  a  restraint 
upon  that  great  corporation,  is  a  dead  letter.  In  Penn- 
sylvania a  similar  result  has  been  obtained,  by  the  suc- 
cess of  the  Pennsylvania  Railroad  in  preventing  legis- 
lation to  give  effect  to  the  constitution.  Last  winter 
a  bill,  designed  solely  to  carry  out  its  provisions,  was 
opposed  by  assei'tions  that  these  provisions  are  imprac- 
ticable, and  was  defeated.  It  has  even  been  seriously 
claimed  that,  because  the  Pennsylvania  Railroad  ob- 
tained its  charter  before  the  adoption  of  the  present 
constitution,  it  is  free  from  the  restrictions  of  the  fim- 
dameutal  law.'"'  It  is  in  arrogant  assumption  of  this 
immunity  that  the  Pennsylvania  Railroad  has  now 
bought  off  the  competition  of  the  South  Pennsylvania, 
in  defiance  of  the  constitutional  prohibition  of  the  pur- 
chase or  consolidation  of  competing  lines.  A  similar 
weakness  of  unsupported  constitutional  law,  against  the 
might  of  the  railway  system,  is  found,  to  a  greater  or 
less  degree,  in  nearly  all  of  the  states  whose  constitu- 
tional provisions  on  this  subject  were  collated  in  Judge 
Reagan's  argument  last  winter.f 

The  measures  suggested  to  do  away  witli  the  railroad 

*  "  If  you  will  look  at  the  Constitution  of  the  State  of  Pennsylvania, 
as  amended  in  1873,  you  will  find  in  the  17th  section  a  series  of  provisions 
■U'liich,  if  carried  out  and  enforced,  would  be  amply  suflicient.  15r.t  the 
railroad  men  and  their  advocates  have  managed  to  impress  the  legislat- 
ure with  the  idea  that  they  are  above  the  constitution.  They  assert  that 
every  restriction  imposed  upon  them  in  the  interests  of  jus- tice,  equity,  and 
fair  dealing  is  a  violation  of  the  charter  embodied  in  their  contract.  All 
this  is  no  doubt  very  false  doctrine,  but  they  contrive  in  some  way  (I  really 
do  not  know  how)  to  make  the  state  authorities  accept  it  as  true." — Judge 
Blaclca  letter  to  New  York  Chamher  of  Commerce,  Nov.  IGth,  1880. 

t  Congressional  Record,  vol.  xvi.  p.  309. 


326  The  Bailways  and  the  Rejpublic. 

wrongs  may  be  classed  iindei*  three  Leads:  (1),  owner- 
ship and  management  of  railways  by  the  state ;  (2),  reg- 
ulation of  railways  by  public  officers,  generally  a  board 
of  commissioners ;  and,  (3),  regulation  by  laws,  prohibit- 
ing discriminations  and  other  abuses  under  criminal  pen- 
alties, and  providing  better  remedies  for  the  recovery  of 
civil  damage  by  the  suffering  parties.  Of  these  meas- 
ures the  ownership  and  management  of  the  railways  by 
the  states  was  early  proposed,  but  has  received  little 
public  support.  There  seems  to  be  a  general  and  well- 
founded  belief  that,  while  the  management  of  the  rail- 
ways by  the  government  might  remove  many  of  the 
evils  of  corporate  control,  it  would  certainly,  in  our 
jDolitical  system,  cause  others  as  great  or  greater.  There 
are  still  some  very  respectable  advocates  of  this  sys- 
tem, who  allege  that  it  has  proved  a  success  in  Europe. 
But  the  examj^le  of  European  railways  cannot  be  cited 
as  conclusive  for  this  country.  The  military  consider- 
ations, which  govern  the  leading  governmental  railways 
in  Europe,  are  of  no  weight  in  this  country,  while  the 
commercial  pui'poses  which  are  primary  here  are  there 
secondary  to  the  rapid  concentration  of  troops  at  stra- 
tegic points;  nor  does  a  comparison  of  their  finan- 
cial results  with  those  of  the  American  railways  com- 
mend the  plan.  In  Belgium  the  ratio  of  expenses  to 
earnings  is  somewhat  less  on  the  state  railways  than 
on  those  of  private  companies  ;  while  in  Germany  the 
private  railways  have  a  slight  advantage  in  this  re- 
spect. But,  making  allowance  for  the  business  which 
the  governments  of  these  countries  can  put  on  their 
own  roads  at  their  own  rates,  the  su^^eriority  of  the 
private  railways  is  marked,  and  confirms  the  the- 
ory, generally  accepted  in  England  and  America,  that 


The  Discussion  of  Remedies.  327 

in  any  business,  private  enterprise,  with  free  competi- 
tion, furnishes  more  economical  and  efficient  service  to 
the  public  than  the  ownership  and  management  by 
the  state. 

A  conclusive  argument  against  the  operation  of  rail- 
ways by  tlie  state  is,  that  it  would  introduce  into  our 
politics  a  vast  amount  of  patronage,  which  must  largely 
become  tlie  spoil  of  professional  ]3oliticians.  If  the 
present  business  of  the  government,  involving  the  col- 
lection and  distribution  of  about  $300,000,000  of  rev- 
enue, cannot  be  administered  with  a  view  solely  to 
efficiency  and  economy,  but  is  used  as  the  reward  of 
skill  in  swaying  the  popular  vote,  any  reformation  of 
our  politics  would  be  made  utterly  hopeless,  if  that 
patronage  were  increased  by  an  interest  involving  $900,- 
000,000  additional  gross  revenue,  controlling  nearly  $4,- 
000,000,000  of  property,  and  exercising  a  power  over 
the  business  interests  of  the  country  beside  which  that 
of  political  parties  is  now  trifling.  When  our  politics 
are  purified,  so  as  to  exclude  from  them  selfish  ends 
and  improper  means,  it  may  be  possible  to  bring  the 
railways  under  political  control  without  making  them 
a  source  of  general  corruption.  But  when  such  a  mil- 
lenial  stage  in  human  progress  is  reached,  there  will  be 
no  need  of  railway  or  other  reform.  At  present,  -wher- 
ever railway  management  is  closely  connected  with  pol- 
itics, it  leads  to  bribeiy,  manipulation,  and  betrayal  of 
the  public  trust.  All  forms  of  corruption  would  be 
multiplied  by  making  that  connection  universal  and 
permanent,  and  converting  the  control  of  the  railways 
into  the  prize  and  sustenance  of  politicians  and  wire- 
workers. 

Apart  from  the  danger  to  public  morals  of  a  state 


328  The  Railways  and  the  JRepiiblic. 

railway  system,  what  guarantee  is  there  that  it  w^ould 
act  with  more  impartiality  and  justice  than  the  private 
corporations?  "Why  should  political  control  be  more 
unselfish  and  equitable  in  managing  transportation 
than  financial  control  ?  If  we  must  choose  between 
the  union  of  all  the  railways  under  the  power  of  the 
state,  and  a  combined  corporate  power  such  as  the  pol- 
icy of  pooling  and  federation  seeks  to  establish,  the 
former  might  be  the  least  of  the  two  evils.  The  ad- 
ministration of  them  would  at  least  represent  the  whole 
people  and  be  responsible  to  them,  and  not  to  the 
stockholders  alone.  But  no  such  scheme  offers  any 
remedy  for  the  evils  of  the  system.  Our  study  of  the 
abuses  of  railway  management  is  a  failure,  if  it  has  not 
shown  that  they  all  spring  from  the  centralization  of 
power  in  the  hands  that  control  the  agencies  of  trans- 
portation. Further  to  centralize  and  increase  that 
power,  whether  under  state  or  corporate  control,  would 
but  enhance  the  danger.  A  healthy  public  opinion 
will  doubtless  decide  that  the  railways  can  best  serve 
society,  if  constructed  and  managed  by  private  capital 
and  enterprise,  provided  that  free  competition  is  se- 
cured, both  among  the  railways  and  among  their  cus- 
tomers, and  the  impartiality  which  their  public  char- 
acter demands  is  enforced.  Such  conditions  are  impos- 
sible under  a  centralized  system  of  railways,  whether 
it  is  under  political  or  corporate  ownership ;  and  the 
general  rejection  of  the  project  of  state  railways  shows 
that  the  popular  judgment  has  a  clear  understanding 
of  its  incapacity  to  secure  the  necessary  reforms. 

Management  by  the  state  being  out  of  the  question, 
the  obvious  sufjirestion  is  that  the  law  shall  ree^ulate 
the  management  of  railways  by  the  corporations,  so  as 


The  Discussion  of  Remedies.  329 

to  prevent  abuses  and  punish  wrongs.  The  first  crude 
steps  towards  legislative  regulation  took  the  form  of 
fixing  by  law  a  maximum  limit  for  rates.  It  was  im- 
agined that  the  railways,  if  restricted  to  a  moderate 
maximum,  must  adjust  all  their  rates  with  substantial 
equity,  and  that  thus  both  extortion  and  discrimina- 
tion would  be  held  in  check.  Experience  fully  refutes 
this  idea.  Effective  discriminations  are  always  pos- 
sible within  the  limits  of  any  maximum  rates  that 
would  allow  the  railway  to  earn  its  interest  and  div- 
idend charges.  Not  only  will  a  legal  maximum  of 
freight  rates  fail  to  prevent  discriminations,  but  no 
legislative  ability  can  frame  a  tariff  of  rates  without 
inequality  and  injustice  to  the  railways,  especially  in 
inter-state  commerce.  Any  rate  which  would  be  just 
to  the  trunk  lines  of  the  Central  States  would  be  de- 
structive to  expensive  railways  reaching  the  mines  of 
Colorado  or  California.  Rates  which  the  mines  in  the 
Rocky  Mountains  or  Sierra  Nevada  can  pay,  and  must 
pay,  if  railroads  are  to  be  built  for  them,  would  amount 
to  confiscation  if  applied  to  tlie  coal  mines  of  Pennsyl- 
vania or  the  grain  of  Iowa  and  Nebraska.  The  sched- 
ule which  would  be  just  for  a  railway  at  one  time 
would  be  unjust  at  another.  The  branch  line  tlirough 
a  new  country  must  collect  higher  rates  at  first,  than 
when  it  has  developed  the  productive  powers  of  the 
region.  The  varying  conditions  which  may  properly 
influence  rates  are  innumerable.  It  is  a  lio[)e]ess  task 
to  adjust  the  schedules  to  suit  all  circumstances,  and 
it  is  futile  to  expect  an  adequate  reform  of  railway 
abuses  by  such  means.  The  uselessness  of  attempts 
to  establish  equitable  i-ates  by  law  appears  in  the  fiict 
that   every  such    schedule   wliich   has  been   in   exist- 


330  The  Railways  and  the  Rejpvhlic. 

ence  for  ten  years  is  now  obsolete,  being  far  above  the 
rates  now  fixed  by  the  railways.  This  progressive  re- 
duction of  the  cost  of  transportation  has  been  cited  as 
showing  that  all  regulation  of  the  railways  is  unneces- 
sary. It  is  far  from  proving  this :  but  it  does  prove 
that  attempts  to  prescribe  rates  by  law  are  unneces- 
sary and  futile.  The  laws  of  trade  can  bring  about 
whatever  cheapening  of  the  cost  of  transportation  com- 
petition and  economy  will  produce.  The  province  of 
legislation  is  to  insure  the  free,  universal,  and  regular 
operation  of  these  laws,  so  that  the  benefit  shall  be 
equitably  distributed  among  all  interests  and  locali- 
ties, and  not  monopolized  by  a  few,  while  others  bear 
the  burden.  When  this  aim  is  secured,  and  artificial 
interference  with  these  laws  is  removed,  the  question 
whether  rates  are  low  enough  or  not  can  safely  be  left 
to  them. 

One  remedy  for  railway  abuses,  which  is  too  severe 
and  radical  to  command  general  approval,  has  always 
been  within  the  reach  of  legislative  power,  as  shown 
twenty-nine  years  ago  b}^  the  decision  of  the  Supreme 
Court  of  Pennsylvania  in  the  famous  case  of  the  Erie 
and  Northeast  Railroad  V8.  Casey.*  At  that  early 
stage  in  the  development  of  railway  law,  it  was  held 
by  this  high  tribunal  that  the  legislature  could  declare 
a  forfeiture  of  the  charter  of  its  corporate  creatures, 
for  the  "  abuse  or  misuse  "  of  corporate  privileges,  and 
that  offence  was  defined  as  follows :  "  Misuse  or  abuse 
of  corporate  privileges  consists  in  any  positive  act  in 
violation  of  the  charter  or  in  derogation  of  the  public 
right,  wilfully  done  or  caused  to  be  done  by  those  ap- 
pointed to  manage  the  general  concerns  of  the  corpo- 

*  2  Casey,  287. 


The  Discussion  of  Remedies.  331 

ration."  Apply  this  principle  to  current  raihvay  prac- 
tices, as  characterized  by  the  courts  during  the  past 
few  years,  and  how  many  companies  could  escape  the 
penalty  of  acts  "  in  violation  of  their  charters  or  in 
dero2;ation  of  the  public  ricrhts  T  It  has  been  a^^ain 
and  again  declared  by  the  courts  that  the  first  obliga- 
tion of  the  railways  is  thorough  impartiality  to  all  cus- 
tomers ;  that  it  is  a  condition  of  their  charters  that 
they  shall  offer  equal  facilities  to  all  persons  or  corpo- 
rations alike.  It  has  been  placed  beyond  dispute  by 
the  courts  that  the  obligations  of  the  public  highway 
forbid  combinations  to  exclude  any  person  or  persons 
from  the  enjoyment  of  their  services.  The  declarations 
of  the  bench  have  been  overwhelming,  to  the  effect 
that  all  agreements  to  restrict  competition,  and  to  arti- 
ficially control  the  supply  of  services  or  commodities, 
are  against  public  policy  and  an  attack  upon  public 
rights.  It  is  not  necessary  to  rely  upon  individual  or 
popular  opinion  that  such  acts  are  "in  derogation  of 
the  public  right."  The  courts  have  distinctly  declared 
them  to  be  so.  How  many  railroad  corporations  are 
there,  which  have  not,  by  such  acts  as  these,  exposed 
themselves  to  forfeiture  of  their  charters  ?  There  may 
be  some  unimportant  branches  that  have  committed 
no  such  transgressions ;  but  there  is  hardly  an  inipor- 
tant  line  in  the  country  that  is  not  liable  to  this  pen- 
alty. The  four  great  trunk  lines  were  partners  in  the 
perpetration  of  the  Standard  Oil  infamy,  now  known 
to  have  been  a  most  persistent  and  unscrupulous  vio- 
lation of  the  public  duty  of  impartiality.  Every  road 
that  exercises  an  appreciable  influence  on  the  com- 
merce of  the  country  has,  at  one  time  or  another,  been 
a  member  of  such  pooling  combinations  as  are  charac- 


332  The  Eailways  and  the  Republic. 

tei'ized  by  eminent  courts  as  "  criminal  conspiracies." 
Nearly  every  road  has  discriminated  in  its  rates,  so  as 
to  control  the  route  to  be  taken  by  traffic  shipped  be- 
yond its  lines,  a  practice  declared  by  Justice  Strong, 
of  the  Supreme  Court  of  Pennsylvania  to  be  illegal  and 
in  the  nature  of  monopoly.  Under  the  principles  of  law, 
laid  down  by  the  highest  courts,  there  is  no  doubt  that 
tlie  trunk  lines,  the  anthracite-coal  roads,  the  Western 
combinations,  and  the  Pacific  railways  have  subjected 
themselves  to  the  penalty  of  forfeiting  their  charters,  if 
the  people,  through  their  legislatures,  choose  to  resort 
to  that  severe  and  radical  remedy. 

No  thinking  man  desires  to  see  a  crusade  started,  for 
the  annihilation  of  the  great  railway  corporations,  by 
the  destruction  of  their  corporate  existence,  and  the  re- 
turn of  the  public  property  placed  in  their  charge  to 
the  control  and  disposal  of  the  states.  Such  a  measure 
would  be  destructive,  and  might  fairly  provoke  the 
charge  which  has  been  too  freely  made  against  much 
milder  proposals  for  legislation,  that  it  is  of  the  nature 
of  confiscation.  But  it  may  be  well  to  remember  that, 
if  the  railways  succeed  in  making  milder  legislation  fu- 
tile, or  in  defeating  all  legislation,  until  popular  feeling 
is  aroused  to  extreme  and  destructive  measures,  their 
transgressions  have  placed  this  radical  remedy  within 
the  reach  of  the  people.  The  hope  and  desire  that  oth- 
er legislation  will  prove  efficient  render  it  unnecessary- 
further  to  discuss  this  last  resort.  It  is  enough  to  say 
that,  under  the  decision  quoted,  the  corporations  could 
be  dissolved  by  the  legislatures,  and  the  railway  tracks 
seized  by  the  state,  or  ceded  to  new  corporations  under 
sufficient  guarantees  of  the  public  rights.  There  can 
be  no  question  that  one  or  two  examples  of  this  sort 


The  Discussion  of  Remedies.  333 

would  efficiently  check  the  aggressions  of  the  railways. 
The  destruction  of  a  single  great  corporation,  for  efforts 
to  build  up  monopolies,  would  make  others  extremely 
careful  in  their  policy  for  a  long  time. 

In  planning  measures  for  a  conservative  policy  of 
railway  regulation,  legislators  and  writers  are  divided, 
as  shown  in  the  debates  at  the  last  session  of  Congress, 
between  the  establishment  of  a  railway  commission, 
and  legislation  of  the  character  provided  in  the  Reagan 
bill,  prohibiting,  under  suitable  penalties,  the  more 
pronounced  abuses.  The  different  measures  proposed 
in  the  national  and  state  legislatures  vary  widely  in  de- 
tails; but,  in  their  main  characteristics,  the  two  which 
were  prominently  discussed  in  Congress  last  winter  are 
types  of  the  respective  classes.  The  same  division  of 
opinion  found  expression  in  the  debate  during  the  last 
session  of  the  Legislature  of  Pennsylvania,  and,  indeed, 
wherever  the  subject  has  been  brought  up  for  legisla- 
tive action  during  the  last  two  years.  The  more  active 
and  radical  advocates  of  railway  reform  generally  favor, 
in  substance,  the  plan  of  what  is  known  as  the  IJeagan 
bill.  Legislators  of  more  moderate  views  commonly 
adopt  the  distinctive  idea  of  the  Cullom  bill,  the  es- 
tablishment of  a  Board  of  Railway  Commissioners,  and 
are  often  supported  by  the  I'epresentatives  of  the  rail- 
ways, who  prefer  this  as  an  alternative  to  more  radical 
measures.  The  two  propositions  have  much  in  com- 
mon. Both  attempt  to  define  and  prohibit  discrimina- 
tions and  unreasonable  rates,  declare  sucli  offences  mis- 
demeanors, and  provide  civil  remedies  and  criminal  pen- 
alties for  them.'"^     They  differ  in  that  the  Cullom  bill 

*  The  Cullom  \n\\  has  but  two  sections  iirohibitlng  railway  abuses. 
The  first  defines  the  dcmandin"  or  roceiviii"  of  "  more  than  a  reasonable 


33J:  The  Bailways  and  the  BepuUic. 

forbids  rebates  and  drawbacks  only  wbere  tliey  in- 
flict unjust  discriminations,  while  the  Reagan  bill  pro- 
hibits these  practices  altogether ;  that  the  Reagan 
bill  forbids  pooling,  while  the  Cullom  bill  refers  the 
subject  to  the  commission ;  and  that  the  Reagan  bill 
forbids  the  charging  of  a  greater  rate  for  a  shorter  than 
for  a  longer  haul  which  includes  the  shorter.    The  most 

rate  of  compensation  "  for  any  of  the  services  of  a  transportation  com- 
pany as  "extortion,"  and  makes  it  a  misdemeanor.  The  next  section 
provides  that  for  a  railway  to  "  demand,  collect,  or  receive  from  any  per- 
son a  greater  comj^ensation  for  any  service  it  may  render  in  its  transac- 
tion of  inter-state  commerce,'"  tlian  it  charges  to  another  pei'son  for  "sim- 
ilar and  contemporaneous  service,  under  substantially  the  same  circum- 
stances and  conditions,"  shall  be  a  misdemeanor;  and  that  -whether  it  is 
effected  "directly  or  indirectly,  by  rebate,  drawback,  or  other  device," 
the  fine  for  each  offence  shall  be  $1000. 

The  Reagan  bill,  in  its  prohibitory  sections,  declares  it  to  be  unlawful 
"for  any  person  or  j^ersous  engaged  in  the  transjiortation  of  property  by 
railroad  or  by  pipe  line  or  lines,"  from  one  state  or  territory  to  another, 
or  to  foreign  countries,  to  "  directh"  or  indirectly  charge  to  or  receive 
from  any  one  person  or  persons  any  greater  or  less  amount  of  freight, 
compensation,  or  reward  than  is  by  liim  or  thcra  charged  to  or  received 
from  any  other  person  or  persons,  for  like  and  contemporaneous  service 
in  the  carrying,  receiving,  or  hauling  of  the  same."  Another  addition  to 
this  section,  wholly  foreign  to  the  purpose  of  the  bill,  fixes  the  maximum 
rate  of  fare  on  passenger  travel  at  3  cents  per  mile.  The  next  section 
prohibits  the  granting  of  "  any  rebate,  drawback,  or  other  advantage  in 
any  form,"  directly  or  indirectly.  The  third  section  makes  it  unlawful, 
on  the  jjart  of  the  railways,  to  enter  into  combinations  to  jjrevent  tlie  car- 
riage of  property  "from  being  continuous  from  the  place  of  shipment  to 
the  place  of  destination ;  or  to  enter  into  any  contract,  agreement,  or 
combination  for  the  pooling  of  freights,  or  to  pool  the  freight  of  diflerent 
and  competing  railroads,  or  to  divide  between  them  the  aggregate  or  net 
proceeds  of  the  earnings  of  such  railroads."  The  fourth  section  makes  it 
unlawful  for  the  railways  to  charge  a  greater  rate  for  performing  a  given 
service  for  a  shorter  than  for  a  longer  distance  which  includes  the  short- 
er, and  applies  to  all  the  roads  in  use  by  a  corporation  whether  owned  or 
leased  by  it.  These  prohibitions  are  reinforced  by  the  fifth  section,  re- 
quiring the  posting  of  rates  in  all  depots  where  freight  is  received,  at  least 
five  days  before  any  change  goes  into  effect.  The  violation  of  any  of 
these  sections  subjects  the  offender  to  a  fin-e  not  exceeding  §2000. 


The  Discussion  of  Remedies.  335 

important  difference,  however,  is  in  the  legal  reme- 
dies which  they  provide  against  offences  prohibited. 
The  Cullom  bill  establishes  a  board  of  nine  railway  com- 
missioners, who  are  authorized  to  hear  and  investigate 
complaints  in  all  parts  of  the  United  States ;  to  assess 
damages  if  unlawful  acts  are  proved ;  and  if  any  rail- 
way fails  to  pay  such  damages  and  to  discontinue  the 
offence,  to  certify  the  case  to  the  district  courts  of  the 
United  States,  which  may  enforce  the  collection  of  the 
damages  and,  by  mandamus,  compel  the  railway  to 
obey  the  law.  The  Keagan  bill  leaves  its  provisions 
to  be  enforced  by  the  existing  courts,  only  seeking  to 
make  the  remedy  more  direct  and  easy.  For  this  pur- 
pose it  permits  the  injured  party  to  bring  suit  in  any 
state  or  federal  court,  within  whose  jurisdiction  the  of- 
fending railway  has  an  office ;  it  awards  him  exemplary 
damages,  three  times  the  loss  which  he  can  prove 
that  the  discriminations  have  inflicted  upon  liim ;  it 
makes  the  resort  to  a  mandamus  from  the  Circuit 
Court  of  the  United  States  cumulative,  and  where  per- 
ishable freights  are  involved,  it  authorizes  that  the 
writ  of  alternative  mandamus  shall  be  returnable  forth- 
with. These  are  the  main  points  of  difference,  briefly 
stated,  between  the  two  proposed  forms  of  regulation: 
one  would  establish  a  commission,  armed  with  certain 
governmental  powers,  and  supposed  to  represent  the 
people;  while  the  other  simply  seeks  to  render  easier 
and  more  effective  the  resort  of  aggrieved  shippers  to 
existing  courts. 

The  plan  of  a  governmental  tribunal,  wliich  shall  give 
exclusive  attention  to  the  abuses  of  railway  manage- 
ment, has  mucli  that  is  attractive.  It  aims  to  bring 
the  strength  of  the  government  to  aid  the  weakness  of 


336  The  Railways  and  the  Republic. 

aggrieved  individuals,  in  their  suits  against  powerful 
corporations.  It  recognizes  the  fact  that  the  failure  of 
common-law  remedies  to  j)revent  discriminations  is  due 
to  the  insuperable  difficulties  which  confront  private 
citize'U'S  in  litigation  against  the  railways.  It  pro- 
poses, therefore,  to  establish  a  body  armed  with  the 
power  of  the  state,  in  behalf  of  oppressed  shippers,  such 
as  can  meet  on  equal  terms  the  strength  of  the  corpora- 
tions. The  idea  of  a  tribune  of  the  people,  established 
to  defend  private  rights  against  corporate  aggressions, 
and  strong  enough,  as  representing  the  whole  people, 
to  restrain  the  undue  and  threatening  powers  of  the 
railways,  is  very  enticing  in  the  abstract.  If  it  oould 
be  made  certain  that  this  conception  would  be  realized 
in  foct,  that  commissions  so  established  would  faith- 
fully and  energetically  represent  and  protect  the  peo- 
ple, that  the  powers  which  it  is  proposed  to  vest  in 
such  bodies  would  be  sufficient  to  enforce  the  law,  and 
that  the  nine  commissioners  would  not  themselves  hold 
an  undue  and  dangerous  control  of  commerce,  the  meth- 
od of  regulation  by  a  commission  would  present  advan- 
tages over  any  other  plan  yet  formulated.  But  while 
the  plan  is,  in  theory,  very  attractive,  its  practical  op- 
eration involves  such  wide  ^possibilities,  with  such  a 
range  of  possible  results,  from  absolute  uselessness  to 
excessive  and  undue  restriction,  that  it  may  be  doubt- 
ed whether  its  ideal  purpose  could  be  realized. 

The  powers  conferred  on  commissions,  by  the  meas- 
ures enacted  or  proposed  in  various  legislatures,  diffiir 
very  widely.  Such  a  bodj^  may  have  entire  control  of 
the  railways  or  may  have  no  powers  at  all ;  it  may  have 
definite  and  stringent  legislation  against  railway  abuses, 
which  it  is  authorized  to  enforce,  or  it  may  have  no  di- 


The  Discussion  of  Remedies.  337 

rect  statute  under  which  to  act  in  restraint  of  such  evils. 
It  may  be  empowered  to  fix  rates  for  the  railways,  as  in 
Georgia,  or  it  may  be  authorized  only  to  hear  and  in- 
vestigate complaints  and  make  recommendations  to  the 
leo^islature,  as  in  New  York.  A  commission  mio-ht  be 
erected  to  enforce  the  provisions  of  the  Keagan  bill,  or 
it  might  be  so  constituted  that  drawing  its  salary,  and 
holding  stated  sessions  to  discuss  railway  interests, 
would  be  the  limit  of  its  usefulness,  as  is  substantially 
the  case  with  the  Massachusetts  Railroad  Commission 
at  the  present  time.  In  the  wide  range  of  measures 
proposing  commissions,  the  Culloni  bill  is  a  fair  exam- 
ple of  those  which  sincerely  aim  to  restrain  by  law  the 
abuses  of  discrimination  and  exorbitant  charges.  It 
does  not  invest  the  commission  with  such  extraordinary 
powers  as  some  state  laws  in  existence,  nor  does  it,  like 
others,  stop  short  of  giving  it  any  powers  at  all.  Hav- 
ing been  made  prominent  by  its  passage  through  the 
Senate,  it  must  be  accepted  as  fairly  representative  of 
the  method  and  aim  of  a  large  class  of  similar  measures. 
If  ftiirly  construed  and  enforced,  this  bill  seems  likely 
to  suppress  the  most  serious  railway  abuses.  But  its 
effectiveness  depends  so  entirely  upon  its  construction, 
that  what  the  bill  would  accomplish  cannot  be  fore- 
seen. Its  language  may  be  understood  as  prohibiting 
almost  everything  now  practised  by  the  railways.  Al- 
though the  eleventh  section  distinctly  refers  the  subject 
of  pooling  to  the  commission  for  subsequent  report,  it 
was  declared  by  one  of  the  supporters  of  the  bill,  on 
the  floor  of  the  Senate,  that  the  second  and  third  sec- 
tions clearly  prohibit  pooling.*  A  much  less  forced 
construction  will  find  in  the  same  sections  prohibitions 

*  Senator  Pugh,  of  Alabama,  Congressional  Record,  vol.  vi.  p.  1360. 

99 

^  ill 


338  The  Railways  and  the  Rejpvhlic. 

of  discriminations  between  localities.  If  the  railways 
are  anxious  to  carry  cotton  from  Memphis  to  New  Or- 
leans at  $1  per  bale,  does  not  that  make  the  chai'ge  of 
$3.25  per  bale  from  Winona,  about  one  third  as  far,  ob- 
viously "  unreasonable  V  It  is  plainly  a  discriraination 
to  transport  two  car-loads  of  freight  a  given  distance 
for  one  man,  at  the  price  charged  on  one  car-load  for 
another,  for  it  is  practically  transporting  each  car-load 
for  the  first  at  less  than  for  the  second.  Is  it  any  less 
plainly  a  discrimination,  when  the  railway  hauls  freight 
for  one  shipper  a  given  distance,  for  the  rate  it  charges 
another  for  half  the  distance  ?  That  part  of  the  haul 
■which  is  common  to  both  shipments  is  evidently  made 
much  cheaper  to  the  freight  that  comes  farthest.  But  if 
the  railways  interpret  the  provisions  of  the  bill,  it  would 
make  no  change  in  their  methods.  Rates  are  always 
reasonable  to  them.  Mr.  Fink  is  on  record  as  declar- 
ing that  such  a  freak  as  the  Winona  and  Memphis 
freight  tariffs  might  be  reasonable,  because  there  was 
competition  at  Memphis  and  none  at  Winona.  There 
never  was  a  discrimination,  that  was  not  justified,  in  the 
view  of  the  railways,  by  some  difference  in  the  condi- 
tions. A  radical  construction  of  the  Senate  bill,  vigor- 
ously enforced,  might  make  it  the  most  restrictive  leg- 
islation ever  proposed  on  the  subject.  Construed  ac- 
cording to  the  railway  views,  or  enforced  weakly  and 
negligently,  it  would  be  a  dead  letter.  The  pi'actical 
decision,  therefore,  whether  such  a  law  should  be  a 
dead  letter  or  a  living  power,  would  rest  witii  the  com- 
mission it  creates,  which  could,  at  will,  fipply  its  provi- 
sions vigorously,  or  make  them  of  no  effect. 

On  this  point  the  plan  of  regulation  by  commissions 
must  turn.     It  stakes  the  protection  of  commercial  in- 


Tlie  Discussion  of  Remedies.  339 

terests  upon  the  sincerity,  energy,  and  intelligence  of 
a  board  of  commissioners,  appointed  by  political  influ- 
ences, and  subject  to  the  same  temptations  and  induce- 
ments to  neglect  their  duty  as  the  executive  depart- 
ments of  the  government.  But,  by  the  very  natui'e  of 
the  commission,  the  pressure  of  these  inducements  and 
temptations  will  be  multiplied.  No  matter  how  strin- 
gent or  specific  the  law  may  be,  in  prohibiting  extor- 
tionate rates,  discrimination,  or  pooling,  its  effectiveness, 
if  its  enforcement  is  put  into  the  hands  of  a  commis- 
sion, will  depend  entirely  upon  the  vigor  and  faithful- 
ness of  that  body.  What  guarantee  have  we,  in  the 
provisions  of  the  bill  or  in  the  influences  that  would 
control  the  selection  of  commissioners,  that  they  would 
display  these  qualities?  It  must  be  remembered  that 
this  legislation  seeks  to  restrain  the  greatest  power  in 
the  country,  except  the  united  and  aroused  popular  will. 
It  confronts  not  a  local  or  private  wrong-doer,  but  the 
organized  and  combined  power  of  the  railway  corpo- 
rations, with  unlimited  political  influence,  infinite  le- 
sources  for  corruption,  and  secret  methods  for  control- 
ling appointments  and  legislation.  This  power  has 
kept  courts  in  its  pay,  it  defies  the  princijiles  of  com- 
mon law,  and  nullifies  the  constitutional  provisions  of 
a  dozen  states;  it  has  many  repi'esentatives  in  Congress, 
and  unnumbered  seats  in  the  State  Legislatures.  No 
ordinary  body  of  men  can  permanently  i-esist  it.  Here 
is  the  fatal  weakness  of  laws  establishing  railway  com- 
missions, whether  tlieir  other  provisions  be  radical  or 
mild.  If,  by  any  happy  suspension  of  the  nature  of 
things,  the  stream  turned  out  to  be  purer  than  its 
source,  what  hope  is  there  that  it  could  Ije  kept  clear 
and  undefilecl,  under  the  corrupting  influences  which 


34:0  The  Railways  and  the  Bepublic. 

would  a\vait  it  at  every  turn  of  its  future  course?  It 
is  possible  that,  in  obedience  to  an  imperative  public 
demand,  such  a  body  might  be  organized  with  the  sin> 
cere  purpose  of  restraining  and  preventing  corporate 
abuses.  The  popular  will  has  established  such  bodies 
in  one  or  two  states.  But  le<2:islation  must  resi-ard  the 
future,  and  seek  a  remedy  that  will  be  effective,  not 
merely  for  the  next  year  or  two,  but  for  future  gen- 
erations. Let  popular  vigilance  be  lulled,  or  the  pub- 
lic attention  directed  to  other  issues,  and  will  not 
this  stealthy  and  almost  resistless  power  gradually 
fill  the  commission  with  its  tools,  or  win  over  the  mem- 
bers to  its  purposes?  It  is  idle  to  hope  that  a  board 
of  nine  commissioners,  with  salaries  such  as  a  great 
railway  pays  its  third-class  subordinates,  will  perma- 
nently remain  superior  to  the  manifold  forms  of  press- 
ure and  corruption  that  can  be  exerted  by  four  thou- 
sand millions  of  railway  capital,  until  it  has  been  dem- 
onstrated that  a  house-maid's  mop  can  keep  back  the 
tides  of  the  Atlantic  Ocean. 

Pessimistic  as  this  view  of  the  susceptibility  of  offi- 
cial nature  to  the  influences  of  corporate  power  may 
appear,  it  is  abundantly  borne  out  by  glaring  instances, 
in  a  much  higher  range  of  official  life  than  would  be 
awarded  to  the  members  of  a  railway  commission.  When 
a  department  of  the  national  government  is  believed, 
by  the  secret  use  of  its  authority,  to  have  served  the 
interests  of  land-grant  corporations,  it  is  not  unreason- 
able to  apprehend  that  corporate  influences  might  cor- 
rupt a  body  of  much  lower  standing.  AVhen  the  Su- 
preme Court  of  Pennsylvania,  so  long  eminent  for  abil- 
ity and  integrity,  has  become  a  proverb  for  its  services 
to  the  Pennsylvania  Railroad,  it  seems  hopeless  to  ex- 


The  Discussion  of  Remedies,  '  3il 

pect  a  body  of  mucli  humbler  position  to  withstand  a 
far  greater  and  more  direct  pressure.  The  dignity  and 
honor  of  the  national  cabinet,  or  of  a  supreme  court, 
afford  far  stronger  iutrenchments  for  integrity  and  pub- 
lic duty  than  the  position  of  railway  commissionei', 
while  the  duties  of  the  latter  bring  against  them,  with 
a  hundredfold  greater  energy,  the  forces  combined  to 
assail  them.  Such  a  body  would  sooner  or  later  be- 
come a  mere  bulwark  or  outpost  for  the  defence  of  cor- 
porate abuses,  instead  of  a  fortress  of  popular  rights. 
To  expect  this  is  simply  to  recognize  the  limitations  of 
human  strength,  when  pitted  against  the  vastest  power 
for  corruption  ever  known.  The  result  of  the  unequal 
match  is  as  certain  as  if  nine  men,  however  expert  and 
strong,  were  ordered  to  stand  in  the  path  and  arrest 
the  destructive  course  of  a  mountain  avalanche. 

The  force  of  this  objection  to  the  regulation  of  the 
railways  by  a  few  commissioners  is  shown  in  the  his- 
tory of  such  bodies,  when  established  by  state  legisla- 
tion. Kailway  commissions  are  in  existence  in  Mas- 
sachusetts, New  York,  Georgia,  Illinois,  Iowa,  Kansas, 
Colorado,  and  California.*  Some  of  these  are  invested 
with  large  powers,  while  some  are  merely  supervising 
and  advisory  boards.  Only  two  of  these  bodies  have, 
within  four  years,  made  any  active  effort  to  restrain 
abuses  which  have  aroused  the  press  and  the  jiublic  to 
impatience.  The  other  six,  for  any  practical  benefit 
they  have  secured  to  the  people,  might  as  well  have 
charge  of  regulating  the  movements  of  the  heavenly 
bodies.    It  is  instructive  to  notice  that  the  efl\ictiveness 

*  In  nearly  a  dozen  other  states,  the  office  of  railroad  commissioner  is 
established  by  law,  for  the  tiicoretical  purpose  of  collecting  statistical  re- 
ports, but  it  is  practically,  in  almost  every  case,  a  sinecure. 


342  The  Railways  and  the  Rejpvhlic. 

of  these  boards  appears  to  liave  no  relation  to  tbe 
thoroughness  or  radicalism  of  the  legislation  by  which 
they  are  established.  The  Georgia  raihvay  commission 
has  perhaps  as  great  powers  as  were  ever  proposed  for 
any  such  body ;  and  its  energy  in  enforcing  them  has 
attracted  the  enmity  of  the  railways,  which  have  recent- 
ly demanded  the  restriction  of  the  powers  of  the  com- 
mission. The  California  commission,  with  powers  al- 
most if  not  quite  as  great,  has  not  vitality  enough  to 
make  even  a  passing  impression  on  the  sway  of  the 
Central  Pacific  over  California  commerce.  The  Illinois 
commissioners,  holding  about  the  same  powers  pro- 
posed by  the  Cullom  bill,  with  the  additional  preroga- 
tive of  prescribing  maximum  rates,  has  of  late  years 
shown  a  disposition  to  investigate  and  correct  the  most 
serious  of  the  abuses  which  it  is  its  duty  to  check. 
The  commissions  of  other  states  exhibit  varying  evi- 
dences of  inefficiency,  from  futile  attempts  to  restrain 
corporate  power,  to  supererogatory  efforts  to  strengthen 
the  railways  in  their  supremacy  over  commerce.  It  is 
a  significant  measure  of  the  adequacy  of  this  device, 
that  even  in  Illinois,  where  the  commission  was  estab- 
lished in  obedience  to  the  same  overwhelming  public 
demand  for  regulation  of  the  railways  which  produced 
the  famous  Granger  legislation,  it  served  for  several 
years  only  to  show  how  useless  and  lifeless  such  a 
guardianship  of  the  public  interests  can  be.  And  even 
now  the  charge  is  made  in  that  state,  through  the  press, 
that  "  the  railroads,  in  violation  of  the  law,  are  making 
unjust  discriminations  whenever  it  suits  the  convenience 
and  interests  of  some  pool,  and  that  the  commissioners 
are  doino-  nothing  to  protect  the  people's  interests." 
Certainly  the  plan  of  regulation  by  commissions  has 


The  Discussion  of  Remedies.  343 

not  shown  itself  to  be   an   adequate    or   permanent 
policy. 

The  commission  that  has  been  in  operation  for  many- 
years  in  Massachusetts,  and  that  more  I'ecently  estab- 
lished in  New  York,  deserve  attention,  as  embodying 
the  idea  that  such  a  board,  with  the  mere  power  of 
supervision  and  advice,  can  restrain  railway  abuses 
through  "the  moral  influence  of  public  opinion."  This 
view  was  made  especially  prominent  in  the  debates  of 
Congress  by  representatives  from  Massachusetts,  who 
lauded  the  commission  of  that  state  as  the  panacea  for 
all  railway  ills.  Hardly  any  idea  is  more  hard-worked, 
in  proportion  to  its  strength,  than  this  of  the  moral  in- 
fluence of  bodies  which  have  no  power  to  enforce  their 
opinions.  It  was  asserted  in  Congress,  as  an  evidence 
of  the  influence  of  such  commissions,  that  the  Massa- 
chusetts commission  had,  by  its  recommendations,  se- 
cured the  building  of  a  new  depot  in  Boston,  and  that 
the  New  York  commission  had  brought  about  reforms 
which  cost  the  railways  $200,000.  I  can  imagine  that 
when  public  attention  is  aroused,  the  railways  may 
concede  minor  points  on  the  recommendation  of  the 
commission  for  the  purpose  of  allaying  agitation.  But 
that  the  moral  influence,  either  of  the  commissioners  or 
of  public  opinion,  would  have  weight  against  the  vast 
prizes  to  be  secured  for  railway  managers  and  their 
friends  by  really  vital  aggressions,  is  a  figment  of  the 
imagination.  The  moral  influence  and  I'H'otests  of  the 
press  and  the  public,  against  crushing  an  independent 
and  prosperous  industry,  did  not  weigh  a  scruple,  when 
a  petroleum  monopoly  worth  $100,000,000  was  in  tlie 
other  side  of  the  scale.  The  moral  influence  of  the  press 
and  the  public,  of  magazine  writers  and  public  oflicials, 


344  The  Railways  and  the  Rejpullic. 

even  of  such  standing  as  the  Governor  of  Pennsylvania, 
has  never  had  the  slightest  effect  on  the  anthracite- 
coal  combination.  Moral  influence  may  be  worth  a 
few  thousand  dollars  to  a  railway  company,  but  when 
weighed  against  the  millions  at  stake  in  any  important 
railway  abuse,  it  seems  a  trifle. 

It  is  not  difficult  to  see  how,  in  a  state  whose  stock- 
holders largely  outnumber,  among  the  influential  class- 
es, the  traders  who  sufter  from  unequal  rates,  a  com- 
mission, which  gives  its  principal  attention  to  the  evils 
of  stock  watering  and  market  manipulation,  should 
be  as  satisftictory  to  the  public  as  to  respectable  rail- 
way managers.  But  the  Massachusetts  commission 
affords  little  promise  of  dealing  effectively  with  such 
great  evils  as  have  been  most  conspicuous  in  railways 
outside  of  its  respectable  but  somewhat  contracted 
jurisdiction.  Evidence  that  such  a  body  could  grapple 
successfully  with  an  abuse  like  that  wdiich  built  up  the 
Standard  Oil  Company,  or  break  down  the  tyranny  of 
a  combination  like  the  anthracite-coal  pool,  or  check 
the  aggressions  of  an  unscrupulous  power  like  the 
Southern  and  Central  Pacific  plutocracy,  will  be  sought 
in  vain  among  its  records  and  reports.  On  the  con- 
trary, a  signal  and  mournful  instance  of  the  inability 
of  the  most  eminent  men  who  can  be  placed  on  a  rail- 
way commission  to  resist  the  pressure  of  corporate  in- 
fluences, and  to  maintain  independence  as  defenders  of 
public  rights,  is  furnished  by  its  founder.  There  was 
no  man  in  the  country  more  conspicuously  pledged  to 
the  support  of  public  interests  against  corporations 
than  Charles  Francis  Adams;  there  w^as  no  man  whose 
social  position  and  personal  character  seemed  to  be 
better  fortified  a2:ainst  influences  which  mic^ht  induce 


The  Discussion  of  Remedies.  345 

ordinary  men  to  suiTender  tlieir  independence.  I  do 
not  believe  that  he  has  consciously  surrendered  any  of 
his  convictions  on  these  questions  in  exchange  for  place 
or  fortune ;  nor  do  I  think  his  pi-eseut  position,  as  presi- 
dent of  the  Union  Pacific  Railway,  inconsistent  with  a 
genuine  indignation  at  the  gigantic  frauds  which  he 
exposed  in  its  former  management.  But  one  of  the 
most  powerful  influences  in  forming  a  man's  conviction 
is  the  consciousness  where  his  interest  lies.  The  irre- 
sistible force  of  private  interest,  in  shaping  the  views 
of  eminent  men  on  public  questions,  is  the  most  promi- 
nent lesson  in  the  career  of  Charles  Francis  Adams. 
The  Eno-lish  lan2:uao-e  contains  no  more  vio^orous  or 
telling  exposure  of  the  dangers  from  great  corporations, 
of  their  attempts  to  control  legislation  and  courts,  and 
of  the  necessity  for  protecting  the  people  against  their 
encroachments  in  all  forms,  than  the  earlier  writings  of 
this  able  gentleman.  Yet  the  very  prominence  given 
to  him  by  these  writings  marked  him  as  one  on  whom 
corporate  influences  must  be  brought  to  bear;  and  by 
successive  steps  he  passed  from  one  position  in  the  rail- 
way hierarchy  to  another,  until  he  is  now  one  of  the 
two  leading  advocates  of  the  policy  of  bringing  tlie 
nation  under  the  sway  of  a  vast  corporate  fedei'ation. 
This  result  shows  the  hopelessness  of  staking  public 
rights  upon  the  issue  between  the  independence  and 
integrity  of  a  few  individuals,  and  the  practically  in- 
finite resources  for  corruption  held  l)y  the  railway 
managers. 

The  commission  that  lias  been  in  existence  for  a 
couple  of  years  in  New  York  occupies  a  different  posi- 
tion from  that  of  Massachusetts.  It  is  brought  direct- 
ly into  the  conflict  between  the  greatest  of  the  railway 


346  The  Railways  and  the  Republic. 

powers  aud  the  largest  business  interests.  Represent- 
ing a  large  stockholding  public  and  a  still  larger  trad- 
ing public,  it  would  naturally  seek  to  secure  protection 
for  shippers  without  impairing  the  earnings  of  the  rail- 
ways. But  if  there  were  any  hope  in  railway  commis- 
sions for  the  protection  of  public  rights,  such  a  body, 
founded  after  the  most  searching  legislative  investiga- 
tion ever  made  into  railway  abuses,  could  not  shut  its 
eyes  to  those  abuses,  and  sustain,  in  its  recommenda- 
tions, the  offensive  theory  of  railway  ownership  in  the 
traffic  of  the  section  through  which  it  passes.  Yet  this 
seems  to  be,  in  substance,  what  the  jS^ew  York  com- 
mission has  done.  Two  of  its  three  members  seem 
to  have  adopted  the  views  of  the  railways,  while 
one  member  has  faithfully  represented  the  public 
interest.  The  proportion  has  not  been  favorable  to 
the  effectiveness  of  the  board.  It  has  secured  the 
reduction  of  the  rates  on  milk  to  New  York  city, 
and  it  has  unsuccessfully  advised  the  railways  to  dis- 
continue the  diversion  of  freights.  The  net  value  of 
the  influence  of  an  advisory  commission  is  shown  by 
the  fact  that  sundry  other  recommendations  to  the  rail- 
ways have  been  disregarded,  until  the  commission  it- 
self asked  the  legislature  for  power  to  enforce  their 
advice  by  applying  to  the  courts  for  a  mandamus. 
The  anthracite-coal  pool,  the  trunk-line  pool,  the  Stand- 
ard monopoly,  and  the  practice  of  diverting  freights, 
are  carried  on  within  the  jurisdiction  of  this  body,  but 
it  recommends  no  legislation  on  these  topics.  The 
Court  of  Appeals  of  New  York  has  declared  an  associa- 
tion far  less  important  and  dangerous  than  the  least  of 
these  combinations  to  be  unlawful,  as  "nothing  less  than 
an  attainment  of  an  exception  of  the  standard  of  freights 


The  Discussion  of  Remedies.  3i7 

and  of  the  facilities  and  accommodations  to  be  rendered 
to  the  public  from  the  wholesome  influence  of  rivalry 
and  competition.''  With  this  decision  before  them,  the 
sole  deliverance  which  these  tribunes  of  the  people 
could  make,  on  the  subject  of  pooling,  was  the  tentative 
remark  of  one  of  them,  that  they  were  "  not  satisfied  of 
the  legality  of  pools ;"  while  their  nearest  approach  to 
recommending  legislation  on  the  subject  is  the  prep- 
aration of  a  bill  to  sustain  the  combinations  against 
competition  by  restraining  the  construction  of  new 
roads ! 

This  proposition  is  based  on  the  view  that  new 
railway  construction  "  is  frequently  at  the  expense  of 
vested  rights  and  grave  public  interests."  "'  This  is 
the  first  official  enunciation  of  the  doctrine  that  the 
railways  have  a  proprietary  right  in  the  traffic  of  the 
localities  which  they  serve.  The  extreme  claim  of  rail- 
w'ay  proprietorship  is  that  it  owns  the  shipping  busi- 
ness of  the  men  who  depend  on  its  services,  and  that 
all  efforts  to  compete  with  it  are  "  robbery."  But  it 
is  startling  to  find  a  body,  founded  to  protect  the  pub- 
lic against  the  railway  power,  asserting  that  ownership 
as  a  "  vested  right "  and  a  "  grave  public  interest."  No 
legal  franchise  or  actual  property  interest  of  the  rail- 
ways can  be  impaired  by  competition.  This  idea,  that 
the  railways  have  a  vested  right  in  the  absolute  con- 
trol of  their  traffic,  is  repeated  in  the  next  sentence, 
which  affirms  the  "  obligation  "  of  the  state  "  to  pro- 
tect existing  railroads  from  useless  and  disastrous  com- 
petition by  unnecessary  new  ones."  Such  extraordi- 
nary tenderness  for  the  power  of  the  railways  over  their 
shippers,  and  such  readiness  to  assert  that  the  monop- 

'■^-  Report  of  New  York  Commission  to  tlic  legislature,  December,  1884. 

r 


348  The  Railways  and,  the  Bepuhlic. 

oly  of  tlie  railways  at  points  where  they  have  no  com- 
petition is  a  vested  right,  contrasts  strangely  with  the 
failure  of  the  commission  to  find  any  subject  for  \)vo- 
posed  legislation  in  the  notorious  evils  of  pooling  and 
combinations  to  control  great  interests  of  trade.  But 
the  commission's  action  and  its  inaction  explain  one 
another.  Men  who  could  propose  to  restrict  the  pub- 
lic right  to  build  new  railways  wherever  capital  de- 
sires to  find  an  investment,  could,  of  course,  see  nothing 
wrong  in  combinations  to  prevent  competition  between 
railways  already  existing.  Such  a  body  would  natu- 
rally adopt  the  notion  that  competition  is  the  great 
evil,  which  must  be  prevented  at  whatever  cost  to  pub- 
lic or  individual  rights.  The  people,  whom  this  body 
is  supposed  to  represent  against  the  railways,  may  be 
thankful  that  its  guardians  did  not  make  their  work 
complete,  by  presenting  a  bill  forfeiting  the  charter  of 
any  railway  that  dares  to  keep  up  competition  against 
the  mandates  of  the  pool. 

An  exhaustive  examination  of  the  nature  and  acts 
of  the  railway  commissions  in  the  several  states  is  be- 
yond the  limits  of  this  work.  We  here  simply  inquire, 
how  far  the  workin2:s  of  these  bodies  encoura^je  the 
hope  that  the  general  adoption  of  the  plan,  in  national 
and  state  legislation,  would  afford  adequate  and  per- 
manent protection  to  the  public.  Upon  this  question 
the  facts  stated  seem  to  be  decisive.  A  plan  which, 
amono"  the  state  commissions  already  constituted,  re- 
sults in,  at  most,  two  out  of  eight  that  are  efficient  and 
useful,  does  not  promise  to  grapple  successfully  with 
the  vast  railway  powers  of  the  entire  country,  in  the 
interests  of  independent  commerce.  The  power  which 
has  converted  the  Charles  Francis  Adams  of  1875  into 


The  Discussion  of  Remedies.  349 

the  Charles  Francis  Adams  of  1885,  cannot  be  con- 
quered and  held  in  subjection  by  any  body  of  nine 
men  at  salaries  of  $7500  each.  Such  legislation  as  re- 
sults, in  the  greatest  state  of  the  Union,  in  a  commis- 
sion which,  constituted  for  the  public  protection,  as- 
sumes the  guardianship  of  the  railways,  and  proposes 
to  limit  competition  by  forbidding  capital  and  the  pub- 
lic to  build  new  roads,  will  never  adequately  protect 
the  public  interests.  To  ^^ut  such  a  body  of  weak  and 
fallible  men  in  charge  of  the  vast  interests  of  commerce, 
against  the  aggression  of  the  immense  power  of  com- 
bined railway  capital,  is  not  less  fatuous  than  it  would 
be  to  station  a  pigmy  sentinel  at  the  doors  of  the  treas- 
ure-house, and  bid  him  guard  it  against  an  army. 

The  estimate  Avhich  the  railway  corporations  form 
of  the  probable  value  of  commissions,  ii>  restraining 
their  cherished  abuses,  appears  from  the  fact  that 
wherever  regulative  legislation  has  become  inevitable, 
the  railway  advocates  have,  of  late  years,  urged  the 
establishment  of  them.  Their  preference  for  this  form 
of  legislation  rests  on  an  accurate  estimate  of  the  re- 
spective powers  of  official  independence  and  corporate 
influence.  There  is  nothincf  in  the  character  of  a  com- 
mission  to  insure  moderation  or  conservatism.  Left  to 
itself  it  may  be  either  a  scourge  or  a  cipher.  What 
guarantee  have  the  railways,  that  the  commission  con- 
stituted to  supervise  them  may  not  practise  the  most 
vexatious  and  harmful  interference  with  their  opera- 
tions?*    "What  security  have  the  public  that  such  a 

*Aa  an  illustration  of  what  a  commission  might  do,  take;  the  com- 
plaints which  have  been  made  within  the  past  year  concerning  the  oper- 
ations of  the  Georgia  board.  It  was  rejjresented,  in  an  apjjcal  to  the 
legislature,  by  the  railroads  centring  in  that  state,  that  the  reductions 


350  The  Railways  and  the  Repvhlic. 

body  might  not  attempt  unjust  measures,  exercise  their 
power  arbitrarily,  or,  in  fixing  rates,  compel  the  rail- 
ways to  carry  some  classes  of  freight  at  a  loss,  or  at 
the  expense  of  other  business  ?  To  set  up  a  board  of 
nine  men,  with  the  power  to  govern  these  vast  inter- 
ests, is  to  subject  the  public  welfare  to  the  mere  chance 
of  their  being  wise,  moderate,  and  disinterested  be- 
yond the  common  lot.  Assuming  that  such  a  body 
will  have  energy  and  intelligence  enough  to  control 
the  situation,  the  vast  power  it  can  exert  for  evil  is 
as  serious  a  difficulty  as  its  liability  to  sink  into  ob- 
scure uselessness.  The  preference  of  the  railways 
for  the  commission  plan,  where  they  must  submit  to 
some  legislation,  proves  that  they  have  little  fear  lest 
any  commission  be  too  active  or  powerful  for  them  to 
control ;  and  we  have  seen  that  their  estimate  of  their 
ability  to  control  it  is  not  exaggerated.  The  commis- 
sion might  interfere  arbitrarily  and  injuriously  with 
all  departments  of  railway  traffic ;  it  is  more  likely  to 
neglect  its  duties  to  the  public  and  to  confine  itself  to 
enjoying  the  emoluments  and  perquisites  offered  by  its 
position.  To  subject  the  vast  interests  of  commerce 
and  transportation  to  a  body  which  may  become  either 
the  tyrant  of  the  corporations  or  their  tool,  is  not  the 
way  either  to  secure  true  prosperity  to  the  railways,  or 
to  protect  the  freedom  of  commerce  and  the  rights  of 
the  public. 

Opposed  to  the  Cullom  or  Senate  bill  in  Congress 


in  rates  made  by  the  commissioners  were  "  simph'  crippling  the  railroads." 
The  fact  that  this  appeal  resulted  in  a  bill  restricting  the  power  of  the 
commission  over  rates,  is  not  conclusive  as  to  the  accuracy  of  the  statement ; 
but  the  railway  presentation  of  the  case  certainly  excludes  the  view  that  the 
commission  plan  is  necessarily  the  most  conservative  form  of  legislation. 


The  Discussion  of  Remedies.  Sol 

last  winter  was  the  Reagan  bill ;  and  measures  em- 
bodying tbe  respective  principles  of  tbese  bills  came 
before  some  of  the  state  legislatures.  The  Reagan  bill 
Las  been  advocated  by  the  Congressman  whose  name 
it  bears  through  many  sessions,  and  made  its  nearest 
approach  to  success  in  its  passage  by  the  House  last 
winter.  The  title  of  Mr.  Reagan  to  the  authorship  of 
the  bill  was  disputed  in  the  debates,  Mr,  Rice  of  Mas- 
sachusetts attributing  it  to  Mr.  J.  H.  Hopkins,  the  mem- 
ber from  the  Pittsburgh  district.  Whether  Mr.  Rea- 
gan, Mr.  Hopkins,  Judge  Black,  or  some  unnamed 
author  wrote  the  bill,  it  clearly  expresses  a  matured 
policy  for  correcting  the  wrongs  of  railway  manage- 
ment. It  proposes  to  make  the  legal  prohibitions  spe- 
cific and  direct,  and  to  facilitate  the  recourse  of  private 
shippers,  who  may  be  wronged  by  the  roads,  to  the 
courts  of  law.  Rejecting  the  plan  of  a  commission  for 
the  defence  of  popular  rights,  it  proposes  simply  to 
make  the  definition  of  these  rights  as  clear  as  possible, 
and  to  leave  the  protection  of  them,  where  it  now  rests, 
with  the  courts.  It  makes  no  essential  chansfe  in  the 
relation  of  the  shipper  to  the  railway,  as  already  set- 
tled by  the  courts  under  the  common  law.  The  aim 
of  the  bill  is  to  make  the  resort  to  the  courts  easier 
and  more  effective.  Whether  Mr.  Reagan  devised  this 
form  of  legislation,  or  adopted  the  work  of  others,  the 
unswerving  steadiness  and  ability  with  which  he  has 
urged  it,  throughout  four  terms  of  Congi-ess,  entitle  him 
to  give  his  name  to  the  measure.  It  was  customary 
in  the  debates  of  Congress  and  in  tlie  public,  press, 
while  these  measures  Avere  pending,  to  represent  the 
railway- commission  plan  as  conservative  and  careful, 
and  the  Reagan  bill  as  radical  and  vexatious.     It  is 


352  The  Bailways  and  the  Republic. 

hard  to  find  any  foundation  for  such  an  opinion  in  the 
provisions  of  the  latter.  It  prohibits  all  forms  of  dis- 
crimination and  requires  reasonable  rates,  in  language 
rather  more  painstaking  than  the  Cullom  bill ;  but  the 
exact  application  of  those  prohibitions,  in  both,  depend 
largely  upon  their  construction,  and  the  practical  dif 
ference  in  this  respect  is  unimportant.  Their  points 
of  substantial  difference  are  as  follows; 

1.  The  Eeagau  bill  prohibits  rebates  and  drawbacks 
altogether,  while  the  Cullora  bill  only  prohibits  giving 
any  advantage  by  such  devices.  The  latter  seems  on 
its  face  to  be  equitable ;  but  as  the  sole  purpose  of 
rebates  and  drawbacks  is  to  afford  a  cover  for  advan- 
tages to  certain  shi]3pers,  the  provision  of  the  Cullom 
bill  is  much  like  makino*  it  illesral  to  break  into  a 
house  for  the  purpose  of  stealing,  but  permitting  house- 
breaking whenever  no  purpose  of  robbery  is  proved. 

2.  The  Reagan  bill  prohibits  pooling,  which  the  Cul- 
lom bill,  unless  an  extreme  construction  is  put  upon 
its  language,  leaves  to  the  reports  of  the  future  com- 
mission,and  the  action  of  future  legislators.  Although 
this  prohibition  was  made  a  ground  of  attack  on  the 
former  measure,  it  is  but  a  statutory  declaration  of  a 
principle  already  shown  to  be  settled  at  common  law. 

3.  The  Reagan  bill  prohibits  a  higher  charge  for  a 
short  haul  than  for  a  long  one,  which  includes  the  former. 

Here  Avas  a  point  of  conflict  in  the  Congressional  dis- 
cussion of  the  subject.  The  railway  advocates  cried 
out  in  alarm  that,  if  it  were  enacted,  the  railways  must 
cease  transjoorting  through  freights ;  not  observing  that 
sucli  a  law  would  only  force  them  to  sustain  rates  on 
that  class  of  traffic,  as  the  railway  pool  has  long  been 
trying  to  do  in  vain.     The  fear  of  some  of  the  Western 


The  Discussion  of  Remedies.  353 

men  was  that  this  section  might  compel  tlieir  constit- 
uents to  pay  higher  rates  for  transporting  grain  to  the 
seaboaril.  Yet  under  its  provisions  a  railway  could 
carry  grain  a  thousand  miles  as  cheaply  as  a  hundred, 
if  it  chooses ;  but  it  must  not  charge  more  for  the  hun- 
dred miles  than  for  the  thousand.  The  declaration  of 
the  railway  advocates,  that  such  a  provision  is  imprac- 
ticable, sounds  strangely  in  connection  with  their  praises 
of  the  Massachusetts  law,  when  it  is  found  that  the 
Massachusetts  law  contains  exactl}'  this  provision.'"^ 

The  affection  of  the  railway  interest  for  the  Massa- 
chusetts style  of  regulation  indicates  that  this  provi- 
sion cannot  be  such  a  terrible  one  after  all.  The  sub- 
ject of  rates  for  long  and  short  hauls  has  been  fully 
discussed  elsewhere.  It  is  clear  that  the  cost  of  sei-- 
vice  in  freight  transportation  comprises  two  elements ; 
one  of  whicli,  consisting  of  terminal  charges,  is  the 
same  on  similar  classes  of  freight,  whether  it  is  carried 
a  hundred  or  a  thousand  miles ;  the  other,  consisting 
of  motive  power,  wear,  and  tear,  and  interest  upon  cap- 
ital, varies  in  exact  proportion  to  the  distance.f  It  is 
impossible,  therefore,  that  the  cost  of  service  can  be 
more  for  a  less  than  for  a  greater  distance  which  in- 
cludes the  less ;  and  charges  whicli  bear  an  equital^le 
proportion  to  the  cost  of  service  must  be  somewhat 
greater  for  the  longer  haul,  to  cover  the  difference  in 

*"Xo  railroad  corporation  slmll  charge  or  receive  for  the  transporta- 
tion of  freiglit  to  any  station  on  its  road  a  greater  sum  tlian  is  at  tlie  time 
charged  or  received  for  the  transportation  of  the  like  class  and  quality  of 
freight  from  tlie  same  original  point  of  departure." — Maasachusctls  lie- 
vised  Statutes,  section  190. 

t  This  Avas  clearly  demonstrated  by  Senator  Mahone,  who  may  be  said 
to  have  been  almost  the  only  railroad  president  iu  Congress  who  talked 
sense  on  this  subject. 

23 


354  The  Railways  and  the  Eepullic. 

the  second  element  of  cost.  The  Reagan  bill  does  not 
go  so  far.  As  Mr.  Keagan  Limself  said  in  Congress,  it 
still  permits  discrimination  against  shorter  hauls,  and 
only  seeks  to  do  away  with  the  absurdity  of  such  a 
proclamation  to  shippers  as  this :  "  If  you  send  a  car- 
load of  grain  from  Chicago  to  Buffiilo  we  will  charge 
you  $50 ;  but  if  you  will  send  it  through  to  New  York 
we  will  not  only  give  you  the  extra  haul  for  nothing, 
but  we  will  throw  off  $20  from  the  charge."  The  rail- 
way is  still  permitted  to  bring  St.  Louis  as  near  to 
New  York  as  Pittsburgh  is,  if  it  desires ;  but  it  cannot 
bring  it  any  nearer.  No  honest  advocacy  of  the  rail- 
ways can  ask  more  scope  for  their  freedom  of  action 
than  this.'^'' 

The  section  requiring  publicity  of  rates  was  severely 
attacked  in  the  House  of  Representatives  last  winter. 
But  such  publicity  is  essential,  and  the  rates  published 
must  be  maintained.  If  the  law  undertakes  to  enforce 
the  "  reasonable,  uniform,  and  stipulated  rates,"  declared 
by  the  Supreme  Court  of  the  United  States,  in  1842, 
to  be  the  right  of  all  upon  the  public  highways,  it  must 
assure  to  the  public  full  information  of  what  these 
rates  are.  Secrecy  of  rates  can  be  useful  only  in  cov- 
ering discriminations,  special  privileges,  or  surreptitious 
reductions. 

The  most  plausible  objection  to  this  provision  re- 
fers   to   the    clause  requiring   the    schedule    of   rates 

*  The  character  of  the  opposition  to  tliis  provision  is  exposed  by  the 
fact  tliat,  while  the  representatives  of  the  Pennsylvania  Railroad,  last  win- 
ter, both  on  the  floor  of  Congress  and  in  the  Pennsylvania  Legislature,  de- 
clared it  impracticable,  ruinous,  and  restrictive,  the  same  prohibition  is 
to  be  found  in  a  law  of  the  State  of  Pennsylvania,  passed  in  1861,  for  the 
benefit  of  that  corporation  and  at  its  instance,  conferring  upon  it  mate- 
lial  advantajres. 


Tlie  Discussion  of  Remedies,  355 

to  be  posted  five  days  before  it  goes  into  effect. 
Against  this  the  advocates  of  the  railways  in  Con- 
gress protested  that  it  would  "  destroy  competition.'' 
Admitting  that  it  would  do  so,  the  retort  is  pertinent 
that  the  railways,  now  struggling  to  prevent  competi- 
tion, ought  to  welcome  the  assistance  of  the  law  in 
their  great  effort.  But  it  would  not  destroy  compe- 
tition ;  although,  under  existing  conditions,  it  mio-ht 
work  hardship  to  the  railways,  at  points  at  which  they 
com2:)ete  with  transportation  agencies  not  under  the 
control  of  the  act.^  There  is  some  force  in  the  objec- 
tion that  this  section  does  not  sufficiently  2)i;ovide  for 
such  special  cases.  In  competition  between  a  railway 
and  a  water  route,  for  example,  the  latter  could  reduce 
charges  and  take  all  the  business,  for  five  days  before 
the  reduction  in  railway  charges  could  take  effect;  and 
at  the  end  of  that  time,  by  another  cut,  might  again 
take  all  the  business,  for  five  days  more.  Tlie  same 
course  might  be  taken  by  a  railway  not  suljject  to  reg- 
ulation by  the  national  laws.  Provision  should  be 
made  against  this  danger.  If  the  ci'itics  of  the  section 
had  been  as  anxious  to  perfect  the  measure  as  they 
were  to  strengthen  opposition  to  it,  they  could  easily 
have  devised  an  amendment,  permitting  the  railways, 
on  freight  subject  to  competition  by  routes  not  con- 
trolled by  the  act,  to  make  reductions  wliich  shall  go 

*  There  is  a  ratlicr  startling  contrast  between  the  strenuous  opposition 
to  this  provision  of  tlie  Reagan  bill,  and  the  subsequent  proposition  of 
Mr.  J.  H.  Devcrcux,  on  I)elialf  of  the  rail  waj's,  before  the  Cuiloni  Coniniit- 
tce,  to  require  the  i^ublication  of  rates  under  severer  penalties,  and  to 
make  the  period  of  notice  six  times  as  long.  Thus  we  learn  that  meas- 
ures which  arc  unjust  and  impracticable,  if  proposed  in  a  moderate  form 
for  the  public  interest,  arc  practicable  and  wise  when  pushed  to  an  ex- 
treme for  the  support  of  railway  combinations. 


366  The  Hailways  and  the  Hepublic. 

into  immediate  effect  \Yhen  j)osted.  Such  a  proviso 
would  preserve  the  principle  of  publication,  and  would 
enable  the  railways  to  meet  outside  competition.  The 
first  duty  of  legislation  is  to  guard  public  rights.  It 
is  less  important,  but  still  eminently  proper,  to  protect 
the  railways  in  the  legitimate  conduct  of  their  own 
business.  In  this  matter,  at  least,  the  two  objects  are 
entirely  compatible. 

The  recourse  given  by  this  bill  to  the  courts  is  the 
point  in  which  it  is  most  evidently  superior  in  conser- 
vatism to  the  Cullom  bill.  Instead  of  introducino;  into 
the  decision  of  such  questions  a  supernumerary  body, 
whose  character  and  influence  must  remain  unknown 
until  fully  tested,  it  refers  its  provisions  for  enforcement 
to  tribunals  from  which  the  highest  independence  and 
impartiality  may  be  expected.  The  courts  may  not 
always  be  superior  to  corporate  influence;  but  with 
liberty  of  selection,  the  complainant  will  have  an  op- 
portunity to  make  his  case  fairly  heard.  The  shipper 
will  be  likely  to  prefer  this  remedy  to  that  of  the  Cul- 
lom bill.  Under  the  one  system  he  is  the  defender  of 
his  own  rights,  retains  control  of  his  own  case,  selects 
his  own  counsel,  and  can  exert  his  energy  to  press  his 
claims.  Under  the  other  he  must  support  his  claim 
through  two  courts,  the  first  of  which  can  decide  finally 
against  him,  but  not  against  the  railway.  If  his  case 
is  not  stifled  in  the  commission,  nor  by  the  district  at- 
torney into  whose  charge  it  passes,  it  then  reaches  the 
same  stage  in  the  United  States  courts  at  which  it  is 
allowed  to  start  by  the  Eeagan  bill.  The  railways 
should  prefer  the  direct  appeal  to  the  courts;  for,  un- 
less they  expect  to  corrupt  and  control  the  commis- 
sion, this  will  be  simply  an  additional  tribunal  before 


The  Discussion  of  Remedies.  357 

whicli  they  must  defend  themselves,  with  the  possibil- 
ity that  it  may  be  an  arbitrary  and  injurious  body.  As 
far  as  any  adequate  regulation  of  railway  matters  can 
be  provided  by  litigation,  the  provisions  of  the  Reagan 
bill  afford  better  j^romise  than  those  of  the  Cullom  bill, 
for  a  moderate,  conservative,  and  yet  independent  and 
effective  decision  of  disputes. 

The  penalties  of  the  House  bill  go  further  than  those 
of  the  Senate  bill,  in  awarding  damages  for  discrimina- 
tions to  three  times  the  amount  proved  to  have  been 
suffered,  and  in  imposing  a  fine  of  $2000  for  violations 
of  the  act  instead  of  81000.  The  first  provision  looks 
rather  harsh  at  first  sight ;  but  a  study  of  the  subject 
shows  that  exemplary  damages  are  necessary,  to  make 
the  prohibition  of  favoritism  effective.  If  there  were 
any  satisfiictory  means  of  computing  consequential 
damages  in  such  cases,  it  would  be  better  to  leave  the 
award  wholly  to  the  jury.  But  no  such  means  can  be 
devised,  and  the  award  of  triple  damages  is  moderate, 
when  compared  with  the  practical  effect  of  the  custom- 
ary discriminations.  As  to  the  question  whether  the 
fine,  for  wilful  violations  of  the  law  by  railway  oflScials, 
shall  be  $1000  or  $2000,  either  sum  is  so  trifling  in 
j^roportion  to  tlie  immense  pecuniary  advantages  which 
a  railway  official  can  gain  by  such  violations,  that  it 
does  not  make  much  difference  whicli  penalty  is  pre- 
scribed. 

The  Rea2:an  bill  has  been  denounced,  as  establishing^ 
an  iron-bound  rule  over  railways,  as  interfering  with 
their  freedom,  and  as  severe  and  arbitrary.  In  its  gen- 
eral features,  however,  which  have  been  copied  in 
similar  legislation  proposed  in  the  states,  it  is  really 
among  the  most  moderate  and  least  likely  to  produce 


358  The  Railways  and  the  Bepublic. 

uuAvarranted  interference,  of  all  prominent  measures 
proposed  for  tlie  regulation  of  i-ailway  traffic.  It  at- 
tempts no  interference  with  the  legitimate  operations  of 
the  railways.  No  inflexible  rule  is  laid  down  to  con- 
trol their  transactions.  It  simply  prohibits  certain 
common  practices  under  suitable  penalties.  Its  pro- 
hibitions may  be  classed,  in  general  terms,  under  five 
heads: 

1.  The  railways  must  not  discriminate  between  indi- 
viduals, and  their  rates  must  be  reasonable. 

2.  They  must  uot  discriminate  between  localities,  to 
the  extent  of  charging  more  for  a  shorter  distance  than 
they  do  for  a  longer  one  which  includes  the  shorter. 

3.  The  use  of  rebates  and  drawbacks,  as  a  cover  for 
discriminations,  is  absolutely  prohibited. 

4.  They  must  not  pool  or  combine  with  other  roads. 

5.  They  must  give  full  publicity  to  their  rates. 

The  bill  is  only  an  authoritative  expression,  in  statu- 
tory form,  of  what  has  already  been  declared,  either 
directly  or  inferentially,  by  the  best  authorities,  as 
common  law.  Discriminations,  excessive  rates,  and 
pooling  combinations  have  been  declared  illegal  by  a 
line  of  decisions  from  Chancellor  Walworth  to  Judge 
Hallet.  The  Reagan  bill  goes  beyond  the  common 
law,  only  in  forbidding  rebates  and  in  requiring  public 
rates,  which  are  essential  means  of  enforcing  the  main 
prohibitions,  and  in  its  long-and-short-haul  provision. 
It  differs  essentially  in  its  prohibitions  from  the  Cul- 
lom  bill,  in  forbidding  pooling,  and  in  the  long-and- 
short-haul  provision.  No  one,  who  accepts  the  principle 
that  rates  must  be  reasonable,  can  consistently  object 
to  a  provision  that  the  railways  shall  not  commit  the 
offence  against  reason  of  charging  more  for  a  less  ser- 


The  Discussion  of  Remedies.  359 

vice  tliau  for  a  greater.  Of  all 'legislation  which  aims 
merely  to  regulate  existing  methods  of  railway  business, 
this  is  the  most  reasonable  and  conservative  measure 
yet  matured,  and  affords  the  best  promise  of  some  effec- 
tive remedy  for  prevailing  evils. 

But,  admitting  all  this,  the  chance  that  it  will  be 
adequately  and  permanently  effective  is  very  slight. 
The  same  causes  which  make  the  common-law  remedies 
inefficient  in  preventing  or  punishing  these  practices, 
will  continue  to  operate  under  the  Keagan  bilh  In 
addition  to  the  expense,  delay,  and  difficulties  of  the 
litigation,  the  great  fact,  that  will  place  the  relief  con- 
templated beyond  the  reach  of  the  mass  of  sufferei's,  is 
that  whoever  seeks  it  must  incur  the  enmity  of  a  power 
whose  good-will  is  essential  to  his  prosperity.  If  he 
becomes  aware  of  one  species  of  favoritism  from  which 
he  is  suffering,  he  may  apply  to  tlie  courts,  and,  after 
long  and  vexatious  delays,  may  win  his  case ;  but  in 
the  meantime  some  other  form  of  discrimination  may 
begin  against  him,  only  to  be  rectified  by  another  in- 
definite season  of  litigation,  and  so  on  without  limit. 
It  has  been  asserted  that  a  railway  can  ruin  a  large 
shipper,  merely  by  delay  and  interference  in  the  trans- 
mission of  his  goods,  on  which  no  definite  charge  of 
unfairness  can  be  made.  Whether  this  is  true  or  not, 
it  is  certain  that  the  man  who  attempts  by  litigation 
to  meet  all  the  devices  tlirough  which  an  inimical  cor- 
poration can  obstruct  his  business,  and  to  force  it  to 
treat  him  with  absolute  fairness,  entei's  upon  a  course 
which  will  exhaust  an  ordinary  purse,  and  drive  any 
but  the  most  imperturbable  to  lunacy.  It  was  defiant- 
ly said,  in  the  Congressional  debate,  that  if  the  l)ill  were 
made  law,  the  railways  would  ostentatiously  ignore  its 


360  The  Railways  and  the  Bepullic. 

provisions.  It  is  not  likely  that  they  would  do  so, 
with  such  ostentation  as  to  afford  proof  that  would 
convict  thera  in  the  courts.  Their  managers  are  too  in- 
telligent to  furnish  such  a  weapon  against  themselves; 
but  it  may  be  confidently  assumed  that  these,  or  any 
other  provisions  against  abuses  which  can  be  enforced 
only  by  litigation,  would  be  habitually  violated  with 
impunity,  because  the  great  mass  of  business  men  dare 
not  enter  upon  a  legal  fight  with  corporations  control- 
ling their  means  of  communication  with  their  customers. 
To  set  a  private  individual  against  the  railways  in  such 
a  contest  as  this,  is  like  pitting  the  bows  and  arrows 
of  the  ancient  archers  who  fought  in  the  Greek  galleys 
at  Salamis  against  the  Krupp  guns  and  steel-clad  ves- 
sels of  the  present  day. 

In  short,  the  Reagan  bill  brings  a  little  help  to  the 
defence  of  commercial  rights  by  the  common  law.  It 
specifies  the  act  prohibited.  It  brings  the  remedie3 
somewhat  more  easily  within  the  reach  of  the  injured 
party;  and  makes  the  damages  and  penalties  slightly 
heavier.  All  this  is  only  strengthening  a  rampart 
which  has  been  shown  by  experience  to  be  wholly  in- 
sufiScient  to  check  the  advance  of  the  enemy.  When 
all  the  kindred  restrictions  of  the  law  upon  discrimina- 
tions and  combinations  for  pooling  have  been  nullified 
for  years — the  railways  ignoring  the  law,  obstructing 
suits  in  the  courts,  and  smothering  the  assertion  of  in- 
dividual rights — there  is  not  much  reason  for  believing 
that  a  slight  strengthening  of  these  provisions  will 
adequately  protect  public  rights.  It  might  temporarily 
check  certain  abuses ;  but  when  the  corporations  should 
discover  the  little  difference  between  the  new  law  and 
the  old  one,  the  process  of  subjugating  commerce  would 


The  Discussion  of  Remedies.  361 

be  resumed.  Something  more  is  needed  tban  tlie  patch- 
ing up  of  the  old  methods  of  enforcing  the  common  haw, 
over  which  the  corporate  power  has  riddeu  without 
check  from  its  inception  to  the  present  time.  If  an  in- 
vading army  has  marched  over  the  earth-works  of  a 
defensive  position  with  hardly  a  pause,  is  it  less  than 
fatuity  to  raise  the  next  parapet  by  a  few  more  shovel- 
fuls of  earth,  and  to  invite  the  enemy  to  a  fi-esh  attack? 
Not  thus  is  the  liberty  of  a  nation  defended  against 
conquest.  How  can  a  weak  and  paltering  policy  avail 
more  in  the  defence  of  commercial  independence  against 
corporate  invasion  ? 

Another  weakness  of  the  Reagan  bill  is  that,  while 
its  provision  concerning  long  and  short  hauls  is  a  sin- 
cere attempt  to  solve  that  difScult  question,  it  fails  to 
prohibit  any  but  the  most  glaring  inequalities  between 
localities.  As  Mr.  Heairan  himself  confessed,  and  as  a 
Senatorial  opponent  of  the  measure  urged  with  some 
success,  it  still  leaves  room  for  vital  discriminations  in 
favor  of  the  longer  haul.  The  cause  of  these  discrimi- 
nations is  the  uneven  pressure  of  competition,  which 
the  Reagan  bill  does  not  attempt  to  correct.  They 
are  practised  in  forms  which,  if  less  startling  than  some 
of  those  which  have  been  cited,  are  yet  decisive  in 
determining  the  f\te  of  many  business  firms,  wherever 
the  short  haul  is  between  competitive  points  and  the 
long  haul  is  not.  The  discriminations  already  noted, 
which  oppressed  the  iron  trade  of  Pittsburgh,  from 
1875  to  1879,  were  mainly  of  this  chai-acter.  The 
farmer  near  Abilene,  Kansas,  whose  grain  has  to  bear 
a  freight  charge  of  15  cents  per  bushel  for  transporta- 
tion 1350  miles  to  the  seaboard,  finds  in  tlie  Reagan 
bill  no  alleviation  of  the  advantage  given  to  the  farmer 


362  The  Railways  and  the  BepuhUc. 

near  Kansas  city,  who  gels  Lis  grain  carried  1200  miles 
for  5  cents  a  bushel.  This  is  not  the  fault  of  the  author 
of  the  measure.  It  is  impossible  for  any  mere  prohibi- 
tory clause  to  secure  exact  justice  in  rates  to  and  from 
all  the  numberless  localities.  Althou^-h  the  charsje 
was  made  ag^ainst  the  Reaoran  bill,  that  this  section  re- 
quires  rates  to  be  strictly  in  proportion  to  distance,  ev- 
ery leading  advocate  of  railway  reform  recognized  the 
folly  and  uselessness  of  such  requirement.  The  provi- 
sion as  to  lono;  and  short  hauls  in  the  Keasran  bill  is 
the  best  that  can  be  done  by  that  kind  of  i-egulation ; 
but  its  failure  to  afford  any  remedy  for  a  vast  multitude 
of  discriminations  shows  the  weakness  of  the  scheme. 
These  inequalities  must  be  left  unchecked,  until  leg- 
islation finds  a  way  to  give  free  play  to  the  laws 
of  trade,  which  will  determine  rates  with  unerring 
justice. 

Perhaps  the  most  thorough  regulative  measure  yet 
formulated  is  that  which  was  proposed  by  the  Hep- 
burn committee  of  the  legislature  of  New  York,  com- 
prising the  leading  features  of  both  the  classes  of  bills 
just  discussed.  It  was  the  result  of  a  searching  investi- 
gation which  occupied  nearly  eight  months.  The  com- 
mittee took  some  five  thousand  pages  of  testimony, 
made  a  report,  "which  was  recognized  as  one  of  the  ablest 
presentations  of  this  question  yet  given  to  the  j^ublic, 
and  accompanied  it  by  bills  which  were  embodied  in 
the  New  York  anti-discrimination  bill  of  1880.  The 
essential  provisions  of  this  bill  were :  First,  requiring 
publicity  of  rates;  second,  prohibiting  preferential 
rates;  third,  prohibiting  drawbacks  and  rebates;  fourth, 
enactiuir  that  no  more  should  be  char2;ed  for  a  shorter 
haul  than  for  a  longer  one  over  the  same  line;  fifth, 


The  Discussion  of  Remedies.  363 

declaring  pools  illegal;  and,  sixtb,  establishing  a 
board  of  commissioners  to  see  that  these  provisions 
are  enforced,  to  investigate  complaints,  and  to  secure 
justice  between  shippers  and  carriers.  Such  a  measure 
would  have  more  chance  of  practical  success  than  any 
of  the  measures  heretofore  discussed.  It  goes  as  far  as 
the  Eeagau  bill,  in  enumerating  and  defining  the  pro- 
hibited abuses,  and  brings  to  the  aid  of  the  shipper  the 
commission,  whose  theoretical  duty  it  would  be  to  hear 
his  complaint  and  espouse  his  cause,  if  well-founded. 
The  public  sentiment  which  would  secure  the  passage 
of  such  a  measure  would  doubtless  insure  the  appoint- 
ment, as  commissioners,  of  active  and  earnest  champions 
of  public  interests.  But  whether  such  a  good  begin- 
ning would  be  followed  by  permanent  efficiency  in  this 
mode  of  regulation,  or  whether  the  influence  of  the 
corporations  would  gradually  gain  control  of  the  board, 
is  a  question  on  which  we  have  seen  reason  for  doubt. 
The  measure  was  defeated  in  the  legislature  of  New 
York  by  the  influence  of  the  railways.  An  act  creat- 
ing a  commission  was  passed,  and  as  JNIr.  F.  B.  Thurber 
informed  the  Cullom  committee,  the  board  has  been 
"  constantly  hampered  for  want  of  power,  and  its  deci- 
sions have  been  disobeyed  and  disregarded."  If  we 
suppose  that  the  same  influence  which,  in  New  York, 
robbed  the  anti-discrimination  bill  of  its  best  features, 
and  constituted  a  commission  without  power,  may 
possibly  have  reached  the  members  of  the  commission, 
some  of  its  strange  recommendations  to  which  we  liave 
referred  may  be  explained. 

The  vital  weakness  of  all  these  bills,  however,  as  in- 
deed of  all  measures  that  have  taken  definite  form  for 
the  regulation  of  the  railways,  is  that  they  seek  to  pre- 


364  The  Railways  and  the  Bepullic. 

vent  or  piiuish  only  particular  modes  of  exerting  the 
powers  of  the  railway  managers  for  wrong,  without 
destroying  either  these  powers  or  the  immense  tempta- 
tions to  exert  them.  Certain  practices  are  forbidden, 
but  the  motives  and  opportunities  which  produce  them 
are  left  as  powerful  as  before.  A  thorough  study  of  all 
the  cases  of  discrimination,  favoritism,  and  combination 
shows  that  they  are  the  result  of  the  j)ressure  of  circum- 
stances which  are  practically  imperative  upon  railway 
managers.  These  are,  in  general, of  two  classes:  First, 
the  apparent  necessity  of  these  practices,  to  secure  the 
immediate  profit  of  the  corporations ;  second,  the  temp- 
tation, almost  irresistible  to  any  but  superhuman  in- 
tegrity, to  use  their  control  over  transportation  agencies 
for  private  gain.  All  the  acts  of  injustice  complained 
of  can  be  referred  to  one  or  the  other  of  these  two 
classes.  While  the  constitution  of  the  railway  system 
remains  as  it  is,  the  pressure  upon  every  manager  to 
give  competitive  points  vital  advantages,  and  corre- 
spondingly to  burden  non-competitive  business,  to 
seek  especial  classes  of  traffic  by  surreptitious  reduc- 
tions of  rates,  and  to  sustain  rates  by  combinations, 
will  be  too  great  for  human  resistance.  While  secret 
favoritism  to  a  single  interest,  or  to  a  class  of  shippers, 
can  bring  unlimited  wealth  to  the  railway  manager, 
some  will  yield  to  temptation  and  secretly  violate  the 
law,  expecting  the  power  of  wealth  to  protect  them 
from  legal  penalties.  It  must  be  remembered  that  the 
attempt  to  rectify  these  abuses  comes  into  contact  with 
causes  as  deep  and  broad  as  the  railway  system  itself, 
which,  working  together  with  remorseless  pressure, 
forms  the  most  resistless  social  force  that  the  world 
has  ever  known.     To  prohibit  by  law  particular  mani- 


The  Discussion  of  Remedies.  365 

festations  of  such  forces,  wliile  leaving  the  forces  them- 
selves in  uucheckecl  operation,  is  useless. 

It  may  be  questioned,  indeed,  whether  there  is  not 
an  element  of  injustice,  as  well  as  hopelessness,  in  such 
an  effort.  While  the  existing  conditions  of  society 
subject  the  raihvay  traffic  to  an  incalculable  pressure 
of  circumstances,  forcing  these  prohibited  practices  upon 
them,  is  it  just  to  require  them  to  be  superior  to  that 
pressure?  I  have  already  expressed  my  opinion  that 
many  of  these  inequitable  and  burdensome  acts  of  the 
railway  managers  are  due  to  their  environment,  in  such 
a  degree  that,  w^hile  the  acts  themselves  are  intolerable, 
the  persons  committing  them  must  almost  be  absolved 
from  individual  wrong-doing.  However  this  may  be, 
it  is  certainly  a  public  injustice  to  prohibit  wrongs 
while  preser\  ing  the  efficient  causes  of  them.  Such 
a  course  affords  no  real  and  lasting  relief  to  the  in- 
jured. Under  such  laws,  the  same  wrongs  will  be 
practised  secretly ;  and  when  they  are  discovered,  the 
immense  resources  of  those  who  profit  by  them  will 
be  used  in  legal  subterfuges  and  delay,  or  to  corrupt 
courts,  commissions,  or  other  public  officers,  as  they 
have  so  often  been  used  before.  It  is  all  well  enough 
to  forbid  the  growth  of  Canada  thistles;  but,  if  the 
seed,  is  left  in  the  ground,  the  thistles  will  continue  to 
sprout.  If  men  whose  whole  ambition  is  wealth  are 
left  in  possession  of  powers  which  may  be  stealthily 
misused  to  gain  the  ol)ject  of  their  lives,  witli  no  ob- 
stacle but  the  paper  barrier  of  a  law,  the  secret  or  de- 
fiant misuse  of  sucli  power  is  not  less  certain  than  the 
growth  of  thistles  fi'om  the  seed. 

The  most  important  practical  result  to  be  expected 
from  the  passage  of  the  lleagan  bill  \vas  the  affirmation 


366  The  Railways  and  the  Rejpuhlic. 

by  Congress  of  its  right  and  intention  to  regulate  the 
railways.  Apart  from  the  temporary  check  which  it 
would  have  given  to  the  growth  of  corporate  power, 
which  would  hardly  have  been  appreciable,  it  would 
have  been  worth  somethino:  to  secure  from  Cono-ress  a 
practical  assertion  of  its  readiness  to  support  legislation 
by  the  states,  requiring  the  railways  to  respect  public 
interests,  and  to  maintain  their  character  as  public  high- 
ways. As  a  definite  beginning  of  an  active  regulation 
of  railways  in  the  public  interest,  this  measure,  or  any 
other  not  proposed  as  a  sham  and  public  deceit,  would 
encourage  a  hope  of  legislation  that  might,  in  the  end, 
prove  eflective.  For  this  purpose  the  Cullom  bill  was 
nearly  as  good  as  the  Eeagan  bill.  It  was  a  tactical 
mistake  in  the  supporters  of  railway  reform  in  the 
House,  when  compelled  to  choose  between  the  bill 
passed  by  the  Senate  and  no  legislation  on  the  subject 
at  all,  that  they  did  not  adopt  the  Senate  substitute. 
Either  bill  would  have  a  definite  value  as  the  formal 
commencement  of  the  policy  of  legislative  regulation  ; 
and,  therefore,  either  might  be  supported  by  advocates 
of  reform  who  prefer  other  and  more  effective  provi- 
sions. It  is  asserted  that  the  Senate  committee  on  in- 
ter-state commerce  will  report,  as  the  result  of  its  in- 
vestigations during  last  summer,  a  bill  which  combines, 
to  a  certain  extent,  the  provisions  of  the  Reagan  and 
Cullom  bills  of  last  session.  It  is  said  that  it  will  re- 
tain the  commission  feature,  and  reinforce  it  by  strong 
provisions  against  excessive  rates,  discriminations,  and 
rebates,  by  prohibiting  the  charge  of  more  for  a  long 
haul  than  for  a  shorter  one,  and  by  requiring  publicit}'- 
of  rates.  It  is  said  that  the  new  bill  avoids  the  ques- 
tion of  pooling,  in  this  respect  falling  short  of  the  Rea- 


The  Discussion  of  Remedies.  367 

gan  bill ;  but  in  view  of  the  heroic  doses  which  the  com- 
mittee received  of  railway  theories  on  this  subject,  it 
must  be  regarded  as  an  evidence  of  independence  that 
it  does  not  propose  a  surrender  to  the  combination 
policy.  Such  a  new  measure,  combining  the  leading 
features  of  the  t^vo  opposing  bills,  may  be  a  valuable 
proposition,  as  affording  a  good  chance  for  initial  legis- 
lation on  the  subject.  As  to  its  effecting  a  thorough 
and  permanent  remedy  for  prevailing  evils,  the  consid- 
erations that  have  already  been  suggested  will  apply. 
It  seeks  to  restrain  the  surface  effects  of  certain  influ- 
ences, but  it  leaves  the  influences  at  work  to  nullify  or 
evade  restraint.  For  an  effective  remedy  another  class 
of  measures  must  be  sought.  The  attempt  must  be, 
not  to  prohibit  and  punish  particular  acts,  but  to  re- 
move their  causes ;  not  merely  to  forbid  discriminations, 
but  to  take  away  the  power  of  making  discriminations. 
When  it  is  made  apparent  how  the  unequal  and  imper- 
fect workings  of  competition,  from  which  one  great 
class  of  abuses  spring,  can  be  entirely  reformed,  one 
step  towards  an  adequate  remedy  will  be  plain.  When 
it  is  shown  how  to  destroy  not  only  the  temptation  to 
use  the  railway  power  for  private  gain,  but  the  power 
itself,  the  complete  remedy  will  be  understood.  To 
insure  permanent  relief  from  the  dangerous  methods 
of  the  railway  system,  legislation  must  go  deeper  than 
effects  and  remove  the  causes.  By  determining  those 
causes  and  the  means  of  destroying  them,  the  whole 
problem  will  be  solved. 


CHAPTER  X. 

THE   PUBLIC    HIGHWAY. 

What  legislative  policy  will  remove  the  causes  of 
discriminations,  destroy  the  influences  which  force  the 
railways  into  combinations,  and  take  away  from  rail- 
way managers  both  the  power  and  the  temptation  to 
enrich  themselves  and  their  f^xvorites  by  the  manipula- 
tion of  rates  ? 

It  was  shown,  in  a  preceding  chapter,  that  the  princi- 
pal defects  and  inequalities  in  the  railway  system  arise 
from  the  imperfect  and  irregular  operation  of  competi- 
tion. If  this  be  admitted,  it  is  plain  that  the  true  rem- 
edy lies  in  making  the  operation  of  competition  free 
and  universal.  To  furnish  a  complete  cure,  competi- 
tion must  be  made  free,  continuous,  and  controlling, 
to  an  extent  at  present  unknown  in  railway  traffic. 
If  competition  is  so  unrestricted  that  combinations  will 
but  produce  fresh  competitors,  combinations  will  cease. 
If  it  controls  all  classes  of  railway  traffic,  and  reaches 
every  shipper,  discriminations  in  favor  of  one  class  or 
shipper,  and  against  others,  will  be  impracticable.  If 
competition  enables  the  railway  to  carry  freight  1000 
miles  for  a  given  sum,  while  its  absence  makes  it  im- 
possible  to  carry  it  400  miles  for  the  same  charge,  it  is 
plain  that  all  the  interests  served  by  the  railway  should 
have  the  benefit  of  this  great  economic  principle.  Free 
competition  is  the  cure ;  and  the  legislation  which  is  to 


The  Public  Highway.  369 

extirpate  the  principal  evils  of  the  railways  must  pro- 
tect its  operation  from  restriction  or  interruption.  How 
can  this  be  done  by  legislation  ? 

The  answer  to  this  question  lies  in  the  principle  of 
the  public  highway.  In  all  the  older  forms  of  the  pub- 
lic highway  competition  prevailed,  and  no  combina- 
tions or  monopolies  could  destroy  it.  Every  citizen 
could  enjoy  the  privileges  of  the  highway,  on  equal 
terms  and  with  identical  facilities.  Monopolies  were 
impossible  upon  turnpikes,  and  plank-roads  never  were 
monopolized,  because  every  one  had  the  right  to  run 
vehicles  over  them.  Combinations  were  powerless  to 
charge  the  public  excessive  rates  for  freight  or  travel. 
If  common  cari'iers  on  such  highways  should  combine 
to  establish  exorbitant  rates,  a  ne\v  competitor  could 
put  his  vehicles  on  the  road,  and,  by  moderate  rates, 
obtain  the  business.  Even  if  the  task  of  unitins:  all 
present  and  prospective  common  carriers  could  be  ac- 
complished, merchants  and  farmers  could  protect  them- 
selves against  excessive  and  unequal  rates  by  using 
their  own  wagons,  paying  the  same  tolls  as  the  com- 
mon carriers.  On  the  canals  the  same  principle,  as  am- 
ple experience  has  proved,  maintains  the  same  freedom 
and  stability  of  competition.  Ko  combination  of  canal 
boats  ever  brought  the  grain  trade  under  the  control 
of  a  single  firm,  or  enabled  one  mill  to  monopolize  the 
grinding  of  flour.  One  attempt  to  pool  the  freight 
business  on  the  canal,  less  successful  in  defying  the  law 
than  the  railway  pools,  was  promptly  crushed  by  the 
courts;  but  the  circumstances  sliow  that  the  fi'cedom 
of  competition  on  the  canals  made  it  impossible  to  sus- 
tain artificial  rates  by  such  a  combination.  Under  the 
natural  laws  of  trade  new  competitors  would  not  en- 

24 


370  The  Railways  and  ike  Rejpublic. 

engage  iu  the  business  unless  the  traffic  was  profitable. 
When  the  business  became  unremunerative,  the  excess 
of  competition  was  removed,  some  of  the  carriers  retiring, 
or  takinix  their  boats  where  their  services  were  in  better 
demand.  The  resort  to  pooling  was  both  unnecessary 
and  impossible,  and  the  practice  of  performing  trans- 
portation for  half  its  cost  to  cripple  competition  was 
therefore  unknown.  Of  a  kindred  character  is  the  nav- 
igation of  rivers,  improved  by  a  corporation,  which  col- 
lects tolls  for  its  remuneration.  No  such  company 
ever  claimed  an  exclusive  right  to  run  freight  and  pas- 
senger boats  over  its  highway.  Its  grant  is  merely  the 
power  to  take  tolls  from  all  boats  plying  on  its  waters ; 
and  this  limitation  has  kept  competition  as  free  on  such 
water-courses  as  on  rivers  naturally  navigable,  on  the 
lakes,  or  the  ocean. 

Here  are  three  distinct  forms  of  the  public  highway, 
involving  radically  different  forms  of  construction  and 
methods  of  operation.  The  vehicles  in  use  upon  one 
would  be  useless  on  the  others.  The  principle  of  the 
public  highway  remains  the  same,  although  a  steam- 
boat cannot  run  upon  a  canal,  or  a  canal  packet  upon 
a  turnpike,  or  a  stage-coach  u^^ton  an  improved  river. 
Each  is  a  public  highway  for  the  transj^ortation  and 
travel  adapted  to  its  character.  To  establish  each  of 
these  public  highways,  the  power  of  eminent  domain 
was  delegated  by  the  government.  The  work  of  con- 
structino-  and  maintaining:  each  of  them  was  assio^ned 
to  a  corporation,  with  the  power  to  reimburse  itself  by 
tolls.  In  each  case,  the  obligations  of  the  public  high- 
way, accepted  by  the  corporation,  were  recognized  and 
fulfilled,  by  allowing  all  persons  the  right  to  use  the 
hio-hway  with   wagons,  stages,  canal-boats,  or   steam- 


The  Public  Highway.  371 

boats,  as  demanded  by  the  character  of  each,  upon  the 
payment  of  a  reasonable,  stipulated,  and  uniform  toll. 
The  result  is,  that  the  operation  of  none  of  these  high- 
ways ever  involved  an  attempt  to  build  up  a  monopoly, 
or  threatened  the  independence  of  the  traders,  manu- 
facturers, or  farmers  who  used  them.  The  railway  was 
established  by  the  exercise  of  the  same  governmental 
power  of  eminent  domain,  for  the  same  purpose  of  a 
public  highway.  By  similar  legislation  a  company  was 
chartered  for  its  construction  and  operation,  with  the 
right  to  make  a  profit  by  charging  tolls  for  the  use 
of  the  road.  In  these  respects  it  is  identical,  in  its  pub- 
lic character,  with  the  other  highways;  but  in  its  prac- 
tical operation  a  radical  departure  has  been  made.  In 
the  older  class  of  roads,  the  business  of  building  and 
maintaining  a  public  highway  was  kept  distinct  from 
the  business  of  the  common  carrier  upon  it ;  the  latter 
was  open  to  free  competition.  The  railways  have  con- 
solidated the  two,  and  made  a  monopoly  of  both.  In 
that  monopoly  lies  the  source  of  all  the  evils  which 
have  been  set  forth  in  this  work.  Their  exclusion  of 
all  competing  common  carriers,  and  of  the  general  pub- 
lic, from  the  use  of  their  track,  except  by  tlieir  cars  and 
trains,  and  on  such  terms  as  they  prescribe,  is  the 
source  of  all  discriminations,  the  sustaining  power  of 
all  pools  and  combinations,  and  the  founchition  of  all 
tendencies  to  monopoly  wliicli  tlie  railway  system  has 
developed.  In  itself  an  overthrow  of  tlie  character  of 
the  public  highway,  it  has  led  to  numberless  other  vio- 
lations of  the  public  obligations  attaching  to  that  cliar- 
acter.  Tliis  consideration  makes  clear  tlie  nature  of 
the  remedy  to  be  sought,  and  the  manner  in  wliicli  com- 
petition can  l)e  secured.  Tlie  radical  and  elTective  rem- 
edy for  railway  evils  is  this: 


372  Tlie  Railways  and  the  liepiiblic. 

Legislation  should  restore  the  cliaracter  of  public 
highways  to  the  railways,  by  securing  to  all  persons 
the  right  to  run  trains  over  their  tracks  under  proper 
regulations,  and  by  defining  the  distinction  between 
the  proprietorship  and  maintenance  of  the  railway  and 
the  business  of  common  carriers. 

This  will  seem  to  people  who  are  accustomed  only 
to  the  present  methods  of  the  railway  system  a  radical 
innovation ;  but  it  is  only  returning  to  the  idea  upon 
which  railways  were  first  established.  "  There  are  some 
traces,"  says  Mr.  W.  F.  Ci-afts,*  "  of  an  intention  in  the 
earlier  charters  to  allow  the  public  to  use  their  own 
vehicles  and  motive  power  on  the  railway  tracks ;  but 
this  soon  proved  to  be  impracticable."  The  traces  are 
beyond  dispute,  being  distinct  provisions,  in  all  the 
earlier  charters,  that  every  one  can  run  his  own  cars 
over  the  railway ;  but  such  provisions  were  useless  be- 
cause the  railways  could  fix  tolls  so  high  as  to  be  pro- 
hibitor3\  But  this  Avas  "proved  to  be  impracticable," 
we  are  told  by  Mr.  Crafts,  as  well  as  by  other  eminent 
authorities.  How  was  it  proved  to  be  impracticable? 
When  was  the  experiment  made,  and  what  proof  of 
impracticability  was  the  result?  So  far  from  experi- 
ence having  proved  the  impracticability  of  two  or  more 
railway  carriers  using  the  same  track,  it  has  shown  that 
the  only  serious  obstacle  to  such  a  practice  lies  in  the 
desire  of  all  railway  companies  to  monopolize  the  traffic 
on  their  own  tracks.  The  question  of  the  practicabili- 
ty of  opening  the  railways  to  the  free  use  of  competing 
carriers  involves  an  inquiry  as  to  what  restrictions  are 
necessary  in  their  practical  operations.  Two  great  ob- 
jects are  to  be  aimed  at  in  the  movement  of  trains  over 

*  Sci'ibner''s  Magazine,  October,  1881. 


The  Public  Highway.  373 

a  railway  track :  First,  safety  to  the  public  and  em- 
ployees; second,  the  highest  rate  of  speed  that  is  con- 
sistent with  such  safety.  Both  these  objects  are  of  tlie 
greatest  importance;  and  the  belief  that  the  privilege 
of  using  the  track  must  be  kept  solely  in  the  hands  of 
the  corporation  owning  it  is,  in  a  large  measure,  sound, 
if  it  is  shown  that  the  safety  and  celerity  of  railway 
service  cannot  be  secured  by  any  other  means.  To 
carry  on  railway  operations  at  the  constant  hazard  of 
destroying  scores  of  human  lives  would  rob  such  im- 
provements of  their  beneficial  character.  To  adopt 
methods  which  would  hamper  the  rapidity  of  railway 
services  would  also  be  to  diminish  their  public  value, 
though  this  consideration  is  less  important  than  the 
former.  If  these  requisites  can  only  be  secured  by  the 
present  method,  of  allowing  each  railway  company  the 
exclusive  right  to  run  trains  and  cars  over  its  own 
track,  it  may  as  well  be  acknowledged  at  the  outset 
that  the  practical  objections  to  such  a  reform  as  is  here 
proposed  would  be  too  great.  It  is  necessary,  therefore, 
to  examine  the  means  by  which  the  highest  combina- 
tion of  speed  and  safety  is  secured,  and  to  inquire 
wdiether  they  are  inconsistent  with  the  proposed  re- 
form. 

It  is  evident  that  the  running  of  a  large  number  of 
trains  over  a  single  railway,  in  opposite  directions, 
passing  at  stated  points  and  subject  to  derangement 
by  delay  or  accidents,  requires  tlie  liighest  degree  of 
orscanization  and  skill  in  manaccement.  This,  it  is  to 
be  conceded,  the  railway  system,  as  a  whole,  has  at- 
tained. Now  what  are  the  methods  employed,  in  the 
delicate  and  important  work  of  l)ringlng  one  or  two 
scores  of  trains  over  the  same  track,  from  different  start- 


37-i  The  Hallways  and  the  Bepublic. 

ing-points  to  different  destinations  ?  They  are  sent  out, 
in  the  first  place,  on  exact  schedules  of  time;  but  the 
cases  in  Avhich  these  schedules  are  unavoidably  modi- 
fied are  multitudinous,  and  experience  has  shown  that 
it  is  useless  to  rely  solely  on  them  for  the  regulation 
of  trains.  All  the  trains,  on  any  section  of  railway, 
therefore,  are  placed  under  the  control  of  a  train-de- 
spatcher  at  a  central  point.  This  officer  is  notified,  by 
telegraph,  of  the  movement  of  each  train.  He  keeps 
an  exact  record,  showing  the  progress  and  location  of 
each  train,  at  any  moment  that  the  information  may  be 
required ;  and  his  orders  to  the  officers  in  charge  of 
each  train  are  transmitted  by  telegraph  to  the  various 
stations  as  it  passes,  notifying  them  to  what  points 
they  are  to  go,  where  they  are  to  pass  other  trains,  and 
W'here  they  are  to  w\^it  for  other  trains  to  pass  them. 
Only  an  outline  of  the  responsible  and  intricate  work- 
ings of  this  office  is  necessary  liere.  It  is  enough  to  say 
that,  in  proportion  as  its  organization  is  perfect,  and  the 
obedience  of  the  train  officers  to  its  orders  implicit, 
the  highest  degree,  both  of  speed  and  safety,  in  the 
running  of  trains  is  attained. 

In  addition  to  the  control  which  railway  manage- 
ment no^v  universally  rests  in  the  train-despatcher,  the 
practical  theory  of  railway  operations  is,  that  each  com- 
pany must  have  exclusive  control  of  the  rolling-stock 
on  its  road,  and  supreme  authority  over  the  men  em- 
ployed upon  it.  It  must  know  the  condition  of  each 
engine  or  car.  It  must  have  the  power  to  condemn 
all  that  are  unfit  for  service,  and  to  repair  or  re- 
place them.  The  implicit  obedience  of  conductors,  en- 
gineers, and  brakemen  must  \jq  secured  by  the  power 
of  the  company  to  discharge  them  at  a  moment's  notice. 


The  PulliG  Highway,  375 

Upon  the  principles  of  ^vlncll  this  is  necessarily  but  an 
outline,  the  railway  system  has  been  successful  in  meet- 
ing the  important  requisites  already  specified. 

It  has  also  been  made  plain,  by  experience,  that  the 
practical  enforcement  of  these  precautious,  and  the  adop- 
tion of  the  highest  degree  of  discipline  and  the  most 
perfect  organization,  depend,  in  some  measure,  upon 
causes  external  to  the  corporation.  Railway  compa- 
nies, like  individuals,  sometimes  practice  bad  economy. 
They  use  cheap  and  worn-out  rolling-stock,  they  under- 
pay and  overwork  their  employees,  and,  in  other  ways, 
fall  short  of  the  necessary  efficiency.  Such  niggardli- 
ness often  revenges  itself  by  some  calamity  which  kills 
or  cripples  a  dozen  or  a  score  of  victims ;  and  then  the 
railway  loses  more  by  one  such  accident  than  all  the 
saving  that  can  be  effected  by  such  false  economy. 
The  loss  is  twofold.  The  property  of  the  company  is 
damaged  and  destroyed,  its  business  is  obstructed,  and 
it  must  spend  money  lavishly  in  the  work  of  clearing 
up  the  wreck  and  restoring  order.  On  the  other  hand, 
it  is  liable  for  damage  done  to  persons  or  property  ;  and 
jurors  are  so  prone  to  give  heavy  damages  in  such 
cases,  that  it  is  the  rule  with  railways  to  compromise 
such  suits  on  the  best  terms  possible.  It  is  worth  re- 
membering, in  this  connection,  that  the  strongest  possi- 
ble inducement  for  a  railway  to  perfect  its  organization, 
establish  the  most  thorougli  discipline,  and  adopt  the 
most  perfect  safeguards,  is  the  heavy  penalty  it  incurs 
by  the  losses  from  accidents.  The  same  consideration 
applies  to  its  employees.  The  loss  of  position,  Avliicli 
results  from  disobedience  or  neglect,  is  a  grave  matter 
to  any  man ;  but  it  is  of  slight  importance  beside  the 
loss  of  life  or  limb.     As  regards  the  men  in  charge  of 


376  The  Railways  and  the  Be^puUlc. 

traius,  the  most  overwhelming  incentive  to  strict  dis- 
charge of  duty  and  careful  obedience  to  orders  is  the 
knowledge  that  their  own  lives,  as  well  as  the  lives  of 
those  in  their  charge,  are  at  stake. 

Now  how  do  these  considerations  apply  to  the  prop- 
osition to  open  the  railway  ti'acks  to  the  general  com- 
petition of  carriers  ?  Manifestly,  to  let  any  one  ruu  en- 
gines or  cars  over  any  railway,  free  from  supervision  or 
direction,  would  produce  hopeless  wreck  and  disorder. 
Such  a  proposition  would  be  presumj)tive  of  lunacy. 
But  when  we  inquire  ^vhether  a  plan  cannot  be  per- 
fected which  shall  retain  all  needful  precautions,  and 
enforce  by  law  the  authority  of  the  central  officer  over 
trains  in  motion,  while  giving  to  carriers  the  right  to 
compete  in  the  carriage  of  freight,  the  question  assumes 
a  very  different  aspect.  AVhat  is  there  in  these  meth- 
ods which  cannot  be  preserved  without  the  exclusive 
privilege  of  carrying  freight  over  the  track  ?  The  main- 
tenance of  schedules  need  not  interfere  with  the  free- 
dom of  competition.  The  carrier  wishing  to  run  a 
train  of  his  own  could  be  required  to  run  a  regular 
train  on  schedule  time,  or  to  follow  a  regular  train  with 
an  extra,  just  as  extras  are  now  run  on  every  railroad 
in  the  country.  The  control  of  the  trains  in  motion 
must  be  given  to  a  train-despatcher ;  but  the  trains 
thus  controlled  may  be  owned,  loaded,  and  forwarded 
by  different  carriers.  If  the  law  secures  implicit  obe- 
dience to  the  orders  of  the  train-despatcher,  while  the 
trains  are  on  the  railway,  can  it  make  any  difference  to 
the  safety  and  speed  of  the  service  that  one  train  is 
owned  by  A,  another  by  B,  and  that  both  cai'ry  freight 
at  such  rates  as  are  fixed  by  free  competition  ?  Can- 
not the  authority  which  controls  the  trains  be  made  as 


The  Pxiblic  Highway.  377 

absolute  and  unquestioned  as  now,  or  even  more  so, 
AvitLout  vesting  the  monopoly  of  transportation  in  a 
single  company?  Cannot  the  obedience  of  tbe  men  in 
charge  of  the  trains,  and  their  intelligence  and  care,  be 
secured  in  as  \\vA\  a  deirree  if  comiietins:  carriers  are 
allowed  to  use  the  same  track?  And  cannot  the  use 
of  safe  rolling-stock  and  its  maintenance  in  good  repair, 
by  frequent  inspections,  be  enforced  just  as  well  under 
a  system  of  competition  as  under  a  system  of  monopoly  ? 
These  are  the  questions  which  must  be  answered,  in  or- 
der to  determine  whether  tlie  idea  of  competition  in 
transportation  over  the  same  track  is  practicable. 

This  proposition  does  not  contemplate  sending  a 
number  of  trains  under  conflicting  control  upon  the 
same  track.  It  simply  proposes  that  the  right  of  out- 
side carriers  to  load  their  trains,  at  whatever  rates  they 
choose,  and  to  send  them  over  the  tracks  of  the  railway, 
shall  be  established,  under  whatever  regulations  are 
necessary  for  tlie  preservation  of  speed  and  safety ;  and 
asserts  that  all  these  regulations  can  be  enforced  con- 
sistentl}-  with  the  practice  of  free  competition.  The 
first  condition  that  it  assumes  is,  that  all  sucli  compet- 
ing trains  would  be  started  on  schedule  time,  and  run 
either  as  regular  trains,  or  as  extra  trains  following  tlie 
regular  ones.  It  next  supposes,  as  a  vital  condition, 
that  all  trains  will  be  under  the  control  of  the  train- 
despatcher,  from  the  moment  that  they  come  upon  the 
track  until  they  reach  their  destination.  All  the  de- 
tails of  reporting  the  progress  of  each  train,  at  every 
telegraph  station  wliich  it  passes,  of  keeping  the  record 
of  its  location  in  the  central  office,  and  of  governing  its 
movements  by  telegraphic  orders,  can  be  enforced  as 
well,  whether  the  trains  are  owned  by  a  single  corpoi-a- 


878  The  Hallways  and  the  Jxejpxiblic. 

tion  or  by  a  dozen.  Let  the  law,  or  the  rules  of  the 
railway  company,  provide  absolute  control  by  the  train- 
despatcher,  of  trains  in  motion,  and  the  efficiency  of 
that  officer  need  not  be  in  any  respect  diminished  by 
the  fact  that  the  trains  are  owned  and  laden  by  com- 
peting cari'iers. 

-  The  same  care  could  be  exercised,  under  legislative 
regulation,  or  the  rules  of  the  projirietary  company,  for 
the  safety  of  the  rolling-stock  and  the  discipline  of  the 
employees.  The  powerful  motives  which  now  secure 
the  utmost  precautions  and  the  highest  discipline  on 
the  part  of  the  railways  will  apply  as  strongly  to  the 
carriers  and  their  employees.  The  penalties  now  in- 
curred by  the  railways,  through  carelessness  or  stingi- 
ness, would  fall  with  just  as  much  severity  on  negli- 
gent or  niggardly  carriers.  The  loss  to  them  from  ac- 
cidents, caused  by  allowing  their  cars  or  engines  to  get 
out  of  repair,  or  by  sending  out  their  trains  in  charge 
of  incompetent  or  careless  men,  would  be  far  greater 
than  the  saving  from  any  such  vicious  economy.  They 
would  be  liable,  not  only  to  their  shippers,  but  to  the 
railway,  for  all  damages  caused  by  their  neglect,  while 
the  same  liability  would  attach  to  the  railway  company 
for  letting  its  track  become  unsafe.  Similar  considera- 
tions apply  to  the  officers  in  charge  of  trains.  Their 
situations  would  depend  on  their  care,  watchfulness, 
and  strict  obedience  to  orders ;  but  a  far  stronger  mo- 
tive, regard  for  their  own  lives,  would  stimulate  their 
discipline  and  intelligence.  AVith  such  powerful  incen- 
tives to  the  adoption  and  observance  of  every  precau- 
tion, it  ouo'ht  not  to  be  difficult  to  insure  strict  obedi- 
ence  to  all  proper  regulations,  and  to  move  trains  with 
the  same  safety  and  despatch  that  is  obtained  under 
the  present  system. 


The  Piihlic  Highway.  379 

These  regulations  could  be  established  in  a  variety 
of  ways.  With  the  right  of  all  carriers  to  transport 
freight  over  any  railway  fully  recognized,  it  might  be 
permissible  to  leave  the  rules  which  must  be  observed 
by  them,  in  the  movement  of  trains,  to  the  dictation  of 
the  railway  corporations.  The  company  might  be  al- 
lowed to  establish  a  standard  of  inspection,  and  to  pro- 
vide inspectors  to  secure  the  safety  of  rolling-stock, 
and  to  exclude  all  rolling-stock  that  did  not  meet  tlie 
requirements  necessary  for  safety  and  despatch.  It 
could  have  authority  to  license  qualified  engineers  and 
conductors,  to  be  employed  by  carriers  on  its  track. 
Let  the  right  of  any  person  to  carry  freight  over  its 
tracks  be  established,  provided  its  standard  of  effi- 
ciency and  discipline  is  reached,  and  the  public  need 
not  complain,  however  high  the  standard  is.  The 
liigher  and  more  exacting  the  requirement,  tlie  more 
perfect  will  be  the  security  and  promptness  of  the  ser- 
vice. Or  these  regulations  could  be  made  the  subject 
of  direct  and  specific  legislation.  The  law  might  es- 
tablish an  authority  to  direct  the  motion  of  trains,  and 
enact  penalties  for  disobedience.  It  might  provide  a 
system  of  inspection  for  all  cars  and  engines,  and  for- 
bid the  use  of  those  which  are  worn  out  or  unsafe.  It 
might  establish  a  system  for  licensing  engineers  and 
conductors,  just  as  it  now  does  for  licensing  masters, 
pilots,  and  engineers  of  ocean  and  river  crafts.  The 
qualities  of  care,  intelligence,  and  technical  knowledge 
required  for  taking  charge  of  a  railway  train  are  dif 
ferent  in  kind,  but  not  necessarily  higher  in  degree, 
than  those  for  mana2;in<x  a  steamer  on  the  ocean,  or 
on  the  swift  and  narrow  rivers  of  the  West.  Judging 
by  the  wages  paid  to  conductors  and  engineers  on  the 


380  The  Railways  and  the  HejyuUic. 

railways,  and  those  paid  to  masters  and  pilots  of  steam- 
ers, tbe  qualities  required  for  the  railway  service  are 
much  less  difficult  to  obtain.  Yet  the  law  of  every 
civilized  country  has  a  system  for  testing  and  certif}^- 
ing  the  efficiency  of  men  intrusted  with  the  water 
craft,  and  when  the  corresponding  risks  of  the  two 
systems  of  transportation  are  considered,  the  efficiency 
and  safety  secured  by  the  laws  regulating  Avater  trans- 
l^ortation  do  not  compare  unfavorably  Avith  those  at- 
tained under  the  system  of  monopoly  on  the  railways. 
It  is  not  necessary  to  our  purpose  to  inquire  at  length 
whether,  in  establishing  the  right  of  all  carriers  on  the 
railways,  the  enactment  of  regulations,  the  inspection 
of  trains  and  the  examination  and  licensing  of  conduc- 
tors and  engineers  should  be  left  to  the  railway  com- 
pany or  reserved  for  officers  of  the  state.  It  is  enough 
that  in  either  way  the  same  unquestioned  control  of 
trains,  the  same  watchfulness,  obedience,  and  care  in 
running  them,  the  same  precautions  for  the  repair  and 
security  of  engines  and  cars  can  be  attained  under  free 
competition  as  under  a  monopoly. 

The  methods  of  conducting  an  open  but  properly 
regulated  competition,  on  a  large  railway  system,  may 
be  conceived  as  varied  in  many  ways.  At  any  impor- 
tant point  of  shipment,  there  might  be  a  number  of 
firms  or  companies  owning  engines  and  furnishing 
motive  power  for  the  loaded  cars  of  shippers.  One 
advantage  would  be  that  a  small  capital  could  then 
compete  on  fair  terms  with  the  greatest.  An  engineer 
and  a  conductor,  licensed  to  run  over  the  railroads  of 
New  York,  and  able  to  buy  an  engine,  could  engage 
in  the  business  of  haulinc;  cars  between  Buffiilo  and 
New  York,  or  any  other  cities  of  the  state,  as  vrell  as  a 


The  Puhlic  Highway.  381 

corporation  with  a  capital  of  millions.  The  law  might 
require  that  carriers  should  give  bonds  for  their  good 
conduct,  should  satisfy  the  proper  authoiities  of  their 
efficiency  and  sobriety,  and  should  submit  their  roll- 
ing-stock to  constant  inspection,  and  keep  it  in  thor- 
ough repair.  The  plan  admits  of  the  widest  ran^-e, 
from  the  private  carrier  who  runs  a  train  between  two 
stations  at  stated  intervals,  to  the  great  transportation 
company,  which  may  contract  to  take  freight  from  or 
to  any  railway  station  in  the  country.  Neither  the 
number  of  competitors  engaged  in  the  business,  nor 
the  relative  extent  of  their  operations,  would  conflict 
with  the  thoi-ough  enforcement  of  all  precautions,  and 
the  most  complete  control  of  trains  w^hile  in  motion. 

Cogent  evidence  that  it  is  not  necessary  to  vest  the 
exclusive  right  of  transportation  over  a  road  in  one 
company  is  found  in  the  practice  of  the  railways  them- 
selves. Experience  certainly  has  not  proved  the  free 
use  of  the  railways  by  competing  carriers  to  bo  im- 
practicable, for  no  fair  experiment  was  ever  made  of 
the  plan.  The  railways  have  steadily  inculcated  the 
idea  of  the  necessity  of  monopoly  in  the  operation  of 
their  roads;  but  the  unfounded  nature  of  the  claim  is 
evident  from  the  fact  that,  even  under  the  hamj)ered 
conditions  which  liave  prevailed,  there  are  numerous 
instances  in  which  more  than  one  railway  company 
have  used  a  track  jointly  for  a  term  of  years.  Tlie 
personal  observation  of  the  writer  comprises  five  in- 
stances in  which  this  has  been  done,  with  good  results 
both  as  to  safety  and  speed ;  and  any  one  who  will 
take  the  trouble  to  inquire  can  probably  find  exam- 
ples, whei'e  two  or  more  railway  companies  use  a  sec- 
tion of  track  in  common  without  dilliculty.     Three  of 


382  The  liailways  and  the  Re/puMic. 

the  cases  within  my  knowledge  comprise  important 
portions  of  the  trunk-line  thoronghfores  from  East  to 
West;*  and  the  simultaneous  use  of  these  tracks  hj 
different  companies  shows  that  the  only  reason  why 
such  a  joint  use  of  tracks  by  the  railways  is  not  more 
common  is  the  jealous  exclusiveness  of  the  railways, 
especially  in  preventing  competition  for  local  traf- 
fic. The  contracts  under  which  these  tracks  were  used 
in  common  expressly  excluded  competition  in  local 
business.  In  these  cases  the  purpose  of  the  railways 
was  shown  in  their  effort  to  exclude  that  influence; 
but  the  practicability  of  allowing  more  than  one  car- 
rier to  run  trains  over  the  same  track  was  also  proved. 
Monopoly  is  not  essential  to  safety  in  railway  service ; 
and,  in  the  few  instances  in  which  the  exclusive  pol- 
icy of  the  railways,  and  their  rivaby,  have  permitted 
the  use  of  a  track  by  more  than  one  company  at  the 
same  time,  experience  demonstrates  that  it  can  be  safe- 
ly done,  under  regulations  practically  similar  to  those 
now  enforced. 

The   common   practice  of  the  railways  refutes  still 
more  convincingly  the  claim  that  the  exclusive  owner- 

*  The  most  important  example  of  the  joint  use  of  a  railway  by  two 
great  corporations  is  afforded  by  the  track  between  Newark  and  Colum- 
bus, Ohio,  thirty-three  miles  long,  which  has  been  owned  and  operated 
in  common  l)y  the  Baltimore  and  Ohio  and  the  Pittsburgh,  Cincinnati, 
and  St.  Louis  railways  for  twenty-one  years.  Another  instance  is  the 
fact  that  the  Cleveland  and  Pittsburgh  and  the  Pittsburgh,  Fort  Wayne, 
and  Chicago  railroads,  previous  to  their  lease  to  the  Pennsylvania  Com- 
pany, used  the  same  track  from  Rochester,  Pennsylvania,  to  Pittsburgh, 
twenty-five  miles  in  length,  for  a1>out  twelve  years.  They  are  still  using 
it  under  one  management.  The  third  instance  -was  the  use,  at  the  same 
time,  by  the  Cleveland  and  Toledo  (now  the  Lake  Shore  road)  and  the 
Cleveland,  Columbus,  and  Cincinnati  railroads,  of  the  track  from  Graf- 
ton, Ohio,  to  Cleveland,  a  distance  of  twenty-four  miles,  for  about  twelve 
years. 


The  Public  Highway.  383 

ship  of  all  rolling-stock  nsed  on  a  road  is  necessary  to 
safety.  This  idea,  which  has  been  enunciated  by  the 
high  authority  of  a  judge  upon  the  bench,  in  a  deci- 
sion to  be  noticed  hereafter,  is  amply  disproved  by  the 
practice  of  nearly  all  the  railways.  There  is  not  a 
railway,  transacting  more  than  the  merest  local  traffic, 
which  does  not  permit  the  cars  of  other  companies  to 
pass  over  its  line.  The  cars  of  jS[ew  England  railroads 
are  found  in  Nebraska,  and  those  of  Southern  railways 
are  run  over  New  York  roads  without  a  question. 
This  freedom  in  the  passage  of  cars,  like  the  joint  use 
of  occasional  sections  of  track,  is  permitted,  reserving 
the  exclusive  privilege  of  each  railway  to  dictate  the 
rates  that  shall  be  charged  over  its  own  line ;  and  the 
practice  shows  that  exclusive  ownership  is  not  necessa- 
ry to  security  or  safety.'^'"  The  same  precautions  which 
allow  the  cars  of  twoscore  different  railway  companies 
to  pass  over  a  single  trunk  line,  while  free  competition 
is  obstructed,  could  secure  just  as  high  a  degree  of 
safety  if  the  cars  belonged  to  scores  of  competing  car- 
riers. 

All  the  details  necessary  to  produce  efficiency  and 
security  of  operations  could  be  secured  by  law,  or  by 
the  rules  of  the  corporation  owning  the  road ;  and  all 
such  precautions  are  consistent  with  the  ownership  of 
any  number  of  carriers,  and  thus  with  free  competition 
at  every  station,  side-track,  mill,  or  warehouse  along 
the  road.  As  to  any  necessity  for  placing  the  regula- 
tion of  freight  rates,  or  the  reception,  shipping,  and  de- 

*The  entire  practicability  of  allowing  numerous  carriers  to  own  cars 
and  transport  freight  over  the  same  road  was  shown  in  tiic  early  iiistory 
of  railroading,  in  the  experience  of  the  Allegheny  Portage,  and  tlie  I'liila- 
delphia  and  Columbia  roads,  owned  by  the  state  of  Pennsylvania,  which 
is  referred  to  at  the  end  of  this  chapter. 


384  The  Railvjays  and  the  Republic. 

livery  of  merchandise,  under  the  same  control  as  the 
construction  and  maintenance  of  the  railway,  there  is 
no  foundation  in  reason  for  it.  There  is  no  more  con- 
nection between  the  two  branches  of  business,  than 
there  was,  two  generations  ago,  between  the  building 
and  maintenance  of  a  turnpike  and  the  running  of 
stage-coaches  or  freight-wagons  over  it.  In  this  nat- 
ural and  legitimate  division  of  the  service  lies  tlie  solu- 
tion of  the  railwa}^  problem.  The  business  of  construct- 
ing and  maintaining  a  road  is  one  enterprise.  The 
business  of  carrying  freight  over  the  highway  thus 
constructed  is  another  and  a  distinct  business.  The 
first,  from  its  character,  necessarily  implies  some  exclu- 
sive rights.  Only  a  single  controlling  j^ower  can  lay 
out  a  line  of  railway,  direct  its  construction,  furnish 
the  funds,  and  keep  its  track  in  thorough  and  uniform 
repair.  Having  built  the  railway,  it  is  but  just  that 
the  corporation  should  hold  the  easement  in  the  tracks 
and  right  of  way,  and  the  franchise  to  take  uniform 
and  reasonable  tolls.  But  there  is  nothing  in  the  nat- 
ure of  the  business  to  require  that  only  a  single  com- 
mon carrier  shall  engage  in  the  business  of  running 
engines  and  cars  over  the  track,  with  the  power  to 
levy  prohibitive  rates,  or  to  establish  unequal  privi- 
leges in  its  use.  This  business  should  be  open  as 
freely  to  every  man  on  the  railways  as  it  is  on  other 
highways,  whether  canals,  turnpikes,  or  navigable  riv- 
ers, subject  in  this  case,  as  in  the  others,  to  all  regu- 
lations which,  in  the  nature  of  the  highway,  are  nec- 
essary for  public  security  and  efficiency. 

To  reform  the  railway  business  completely,  legisla- 
tion must  secure  the  perfect  and  unrestricted  operation 
of  competition,  and  at  the  same  time  maintain  all  the 


The  PuUic  Highway.  385 

legitimate  rights  of  the  corporation.  It  must  allow 
every  person  desiring  it  to  run  trains  and  engines 
over  a  railway,  at  uniform  rates  of  toll,  such  as  will, 
in  the  aggregate,  provide  for  the  maintenance  of  way, 
and  yield  a  good  return  on  the  invested  capital.  In 
short,  the  proposition  is  to  devote  the  railway  to  the 
public  use,  in  the  same  sense  and  to  the  same  de<T^ree 
as  turnpikes,  canals,  and  rivers  are  open  to  public 
use,  and  to  make  it  a  public  highway  in  fact  as  well 
as  in  name.  The  i-ight  to  this  use  was  plainly  reserved 
in  all  the  earlier  charters,  and,  in  early  and  authorita- 
tive judicial  decisions,  was  declared  essential  to  the  char- 
acter of  the  public  highway.  The  roads  which  were 
constructed  in  the  first  stages  of  railway  development 
are  obliged,  by  their  charters,  to  allow  every  one  the 
use  of  their  tracks,  upon  the  payment  of  a  fixed  toll. 
The  departure  of  the  present  railway  system  from  the 
original  intent  of  legislation  is  nowhere  more  conspicu- 
ous than  in  its  perversion  of  this  language  in  the  char- 
ters. In  all  the  early  charters,  and  in  many  later  ones, 
the  sole  authority  of  the  railways  to  charge  for  trans- 
portation is  in  the  grant  of  power  to  take  "  tolls."  This 
has  been  interpreted,  in  practice,  as  authority  to  fix 
charges  for  carrying  freight  and  passengers;  but  the 
words  have  no  such  meaning.  A  toll  is  a  fixed  sum  for 
theuse  of  a  highway  or  bridge,  collected  from  those  using 
it,*  and  cannot  be  made  to  cover  the  charges  fur  trans- 
portation imposed  by  a  carrier.     The  charge  made  by 

*  Toll — "a  tax  paid  for  some  libertj'  or  privilege,  particularly  for  tlio 
purpose  of  passing  over  a  l^'idge,  or  on  a  liigliway,  or  for  tliat  of  vcmliiig 
in  a  fair,  market,  or  the  like." — Wcbater's  Dictionary. 

"A  fixed  ciiarge  made  by  those  intrusted  Avith  the  maintenance  of 
roads,  streets,  bridges,  etc.,  for  the  passage  of  trains,  goods,  or  cattle." — 
Imperial  Dictionary. 

25 


386  The  Railways  and  the  BejpuUic. 

a  steamboat,  for  transj)orting  freight  or  carrying  people 
from  one  port  to  another,  is  not  a  toll.  Neither  can 
the  freight  charges  imposed  by  a  canal  ■  boat,  or  the 
fares  collected  of  passengers  in  stage-coaches  on  an  im- 
proved highway,  in  any  correct  sense  be  spoken  of  as 
tolls.  The  rates  which  these  canal -boats,  or  stas^e- 
coaches,  or  other  carriers,  have  to  pay  for  the  use  of  the 
highway  are  tolls.  The  general  use  of  this  word  in  rail- 
way charters  shows  the  original  purpose  of  that  legisla- 
tion. The  roads  were  authorized  to  collect  tolls,  and  not 
freight  charges  or  passenger  fares.  Their  function  was 
to  afford  a  highway  for  the  general  use  of  carriers  and 
the  public,  and  to  take  tolls  for  their  reimbursement, 
and  not  to  assume  the  exclusive  right  of  transportation 
over  the  highway  placed  by  the  state  in  their  charge. 
But  the  rates  of  toll  which,  at  that  stage  of  commercial 
progress,  were  regarded  as  reasonable,  have  now  be- 
come prohibitory,  so  that  the  ability  of  the  company 
to  charge  their  charter  tolls  to  any  other  carrier  has 
given  them  a  monopol}^  of  transportation  over  their 
ow^n  tracks  for  a  generation. 

A  representative  of  the  Reading  Railroad,  in  a  re- 
cent investigation  by  a  municipal  committee  of  the  an- 
thracite-coal discriminations  against  Philadelphia,  said 
that  any  one  who  was  not  content  with  the  rates  of 
the  company  has,  by  its  charter,  the  right  to  run  cars 
on  its  track  and  haul  his  own  freight.  "  But,"  added 
the  railway  official,  so  as  to  make  his  jeer  more  evident, 
"  he  must  pay  a  toll  of  six  cents  per  ton-mile."  This 
he  considered  a  complete  answer  to  the  demand  for  the 
free  use  of  the  railway  by  the  public;  but  if  he  had 
studied  the  question  further,  he  might  have  learned 
that  it  appeals  to  principles  and  authorities  above  the 


The  Piiblic  Mighivay.  387 

provisions  of  a  railway  charter.  "  If  the  toll  amoimts 
to  a  prohibition,"  says  the  syllabus  of  the  decision  of 
the  Supreme  Court  of  the  United  States,  in  the  Cam- 
den and  Amboy  case,  "  it  is  a  monopoly  and  the  road 
is  not  public."  And  again,  "The  declaration  in  the 
charter,  that  the  railroad  is  a  public  one,  does  not  make 
it  so,  if  the  effect  of  the  charter  is  to  give  the  exclusive 
use  to  the  corporation."  In  that  case,  the  rate  of  ei^-ht 
cents  per  ton-mile  on  freight  was  regarded  by  the  court 
as  having  "strong  features  of  a  monopoly."  But,  as 
was  natural  in  that  era  of  commercial  j^rogress,  the 
judges  did  not  regard  the  feature  of  monopoly  as  dis- 
tinct enough  to  warrant  the  declaration  that  the  charter 
was  unconstitutional  and'  void.  But  if  actual  experi- 
ence had  demonstrated  to  the  court  that  this  rate,  or 
any  other  fixed  by  the  earlier  chartei's,  was  prohibitory, 
and  gave  the  corporation  a  monopoly  of  transportation 
over  its  tracks,  is  there  a  doubt  that  it  would  have  set 
aside  the  charter?  The  principles  of  the  decision  are 
too  clear  to  leave  any  doubt  on  the  question.  The  as- 
sertion in  the  charter,  that  the  use  of  the  road  is  to  be 
public,  does  not  settle  the  matter,  the  court  declares ; 
it  is  the  practical  operation  of  tlie  road  that  is  decisive. 
If  the  rate  of  tolls  is  such  as  to  prohibit  the  free  use 
of  the  tracks  by  the  public,  and  to  give  the  corporation 
the  exclusive  use,  the  tolls  are  not  reasonable,  the  road 
is  a  monopoly  and  not  a  public  liighway,  and  the  act 
authorizing  the  appropriation  of  private  property  for 
its  right  of  way  would  be,  as  Chancellor  Walworth 
said,  a  violation  of  the  contract  wherel)y  the  land  was 
granted  to  the  individual,  and  repugnant  to  the  con- 
stitution of  the  United  States. 

This  principle  was,  at  an  early  day,  the  foundation 


388  The  Railways  and  the  Rej)iiblic. 

both  of  legislation  on  the  subject,  and  of  its  judicial 
construction.  This  was  conceded  by  Mr.  Crafts,  ^vho 
said :"'  "  It  was  expected  that  the  public  would  furnish 
its  own  motive  power  (horses),"  and  then  passed  on, 
evidently  supposing  that  the  word  in  brackets  demon- 
strates the  folly  of  expecting  any  one  but  the  railway 
company  to  use  the  motive  power  of  steam.  But  the 
susfsrestion  is  unsound.  If  the  fact  that  horses  were  at 
first  expected  to  be  the  permanent  motive  power  on 
railways,  furnishes  a  legal  obstacle  to  the  use  by  the  pub- 
lic of  an  improved  power,  when  developed,  it  presents 
the  same  obstacle  to  the  adoption  of  such  an  improve- 
ment by  the  corporation.  Questions  of  construction 
are  to  be  resolved  in  favor  of  the  i^ublic  right.  It  Avould 
be  a  legal  enormity  to  construe  the  same  instrument,  as 
limiting  the  public  to  the  use  of  an  obsolete  motive 
power,  and  giving  the  corporation  the  right  to  use  im- 
proved machinery  and  a  modern  system.  It  is  true 
that  the  change  from  horse-power  to  steam  locomotives 
led  the  public  to  neglect  its  privilege.  In  the  first 
three  decades  of  railway  development,  the  public  did 
not  care  to  invest  money  in  locomotives.  The  only 
carriers  w^ho  were  able  to  buy  rolling-stock  and  run 
trains  by  steam  were  the  railway  companies  them- 
selves. The  corporation,  whose  pro2:)erty  would  other- 
wise lie  idle  and  unremunerative,  was  naturally  the 
first  to  make  the  additional  investment  necessary  for 
the  carrying  business.  No  doubt  the  railway  managers 
were  also  the  first  to  discover  the  tremendous  power 
over  commerce,  to  be  attained  by  the  exclusive  control 
of  transportation  over  their  tracks,  and  to  that  dis- 
covery is  probably  due  the  appearance  of  grants  of  that 

*  Scribnefs  MontJdy,  October,  1831. 


The  Public  Highway.  3S9 

exclusive  privilege  in  the  more  modern  charters,  and 
the  industrious  circulation,  during  late  years,  of  the 
idea  that  the  safety  and  efficiency  of  the  railways  de- 
pend on  it. 

In  the  first  stage  of  railway  development  the  pub- 
lic right  was  reserved ;  but  in  the  later  stages  it  has 
been  lost  in  practice,  and  many  more  recent  charters 
positively  grant  to  the  corporation  the  exclusive  right, 
or  in  other  words  the  monopoly,  of  transportation  over 
its  own  highway.  But  the  question  arises,  can  the 
leirislature  srrant  such  a  rio^ht?  Can  the  sovereign 
power  to  construct  public  highways  be  so  exercised 
that  no  vehicles  shall  move  or  transport  goods,  unless 
owned  and  operated,  by  the  single  corporation?  It  is 
plain  that,  in  the  case  of  a  turnpike  or  canal,  the  exer- 
cise of  such  a  power  would  have  been  declared  beyond 
the  authority  of  the  legislature.  It  was  clearly  shown 
by  Chancellor  Walworth,  Justice  Baldwin,  and  other 
judges  of  the  highest  authority,  that  the  legislature  has 
no  power  to  establish  monopolies  under  the  guise  of 
public  highways.  Yet  this  exclusive  right  of  use  is  aS 
clearly  a  monopoly  in  a  railway  as  in  a  canaL  If,  as 
Judge  Baldwin  asserted,  the  permission  to  the  com- 
pany to  exact  prohibitory  rates  would  vitiate  and  de- 
stroy the  entire  charter,  ho^v  much  more  clearly  would 
the  exclusive  grant  of  the  privilege  of  transportation, 
or  the  seizure  of  such  an  exclusive  use  under  a  con- 
struction of  the  charter,  make  the  charter  itself  uncon- 
stitutional ?  According  to  the  broad  and  consistent 
theory  of  law,  laid  down  by  the  older  jurists,  the  right 
of  eminent  domain  cannot  be  used  to  give  any  corjiora- 
tion  exclusive  rights  in  a  public  highway,  save  such  as 
are  necessaiy  to  the  constructi(^n  and  maintenance  of 


390  The  Railways  and  the  Bepuhlic. 

the  road.  If  either  by  theory  or  practice  the  use 
of  the  highway  has  become  the  sole  privilege  of  one 
corporation,  then,  if  the  monopoly  is  granted  by  the 
charter,  the  charter  is  void ;  while,  if  it  is  established 
without  the  authority  of  the  charter,  it  is  a  violation 
both  of  the  charter  and  of  public  rights. 

It  must  be  admitted  that  later  courts  of  the  hie^hest 
authority  have  taken  a  different  view.  It  has  been 
held  by  the  Supreme  Court  of  the  United  States,  and 
in  various  forms  by  other  judges,  that  the  exclusiv^e 
use  of  its  railway  by  a  company  does  not  destroy  its 
character  as  a  public  highway,  but  simply  constitutes 
a  regulation  necessary  for  the  safety  and  efficiency  of 
the  service.  In  this  assertion  some  eminent  judges 
have  not  confined  themselves  to  defining  the  law,  but 
have  attempted  to  settle  a  question  of  fact — the  ques- 
tion whether  such  exclusive  rights  are  necessary  to 
safety.  The  Supreme  Court  of  the  United  States,  how- 
ever, did  not  undertake  to  decide  this  question,  but  left 
it  to  the  legislature.  In  a  decision,  pronounced  twelve 
years  ago,  affirming  strongly  the  principle  that  the  rail- 
Avay  is  a  public  highway,*  Justice  Strong  said :  "  That 
all  persons  may  not  put  their  own  cars  on  the  road, 
and  use  their  own  motive  power,  has  no  bearing  u^^ou 
the  question  whether  the  road  is  a  public  highway.  It 
bears  only  upon  the  mode  of  use,  of  which  the  legis- 
lature is  the  exclusive  iudfje."  This  laniruaire  susrirests 
a  conflict  between  the  Supreme  Court  in  1842  and  the 
Supreme  Court  in  1874.  Justice  Baldwin  held  that  a 
mode  of  use  under  the  charter,  which  gives  the  corpora- 
tion an  exclusive  use  of  the  road,  is  a  monopoly  and 
renders  the  charter  unconstitutional.  Justice  Strong 
*  Olcott  vs.  Supervisors,  16  "Wallace.  078. 


The  Puhlic  Highway.  391 

holds  that  such  exclusiveness  is  a  practical  question  of 
which  the  legislative  power  is  to  judge.  As  the  point 
at  issue  is,  simply,  what  is  the  actual  result  of  this  ex- 
clusive control,  the  puhlic  is  at  liberty  to  choose  be- 
tween the  view  of  Justice  Strong:  and  that  of  Justice 
Baldwin.  I  must  accept  that  of  the  earlier  judge.  It 
is  inconsistent  with  the  character  of  a  public  highway 
that  the  public  cannot  travel  or  transport  its  goods, 
except  in  the  vehicles  of  the  corporation  wliich  built 
the  road,  and  by  paying  whatever  rates  it  demands, 
limited  only  by  an  obsolete  and  exorbitant  maximum. 
A  monopoly  in  travel  and  transportation  is  at  war  with 
the  very  object  of  a  public  highway.  But  even  al- 
though, upon  a  direct  issue,  the  later  view  should  pre- 
vail, that  such  exclusive  rights  do  not  destroy  the  char- 
acter of  the  road  as  a  public  highway,  the  remedy  is 
still  within  the  reach  of  the  people.  The  exclusive 
privilege  is  "  a  mode  of  use,"  of  which,  according  to 
Judge  Strong,  "the  legislature  is  the  exclusive  judge." 
The  subject,  then,  is  entirely  within  the  regulating 
power  of  legislation.  While  the  two  decisions  diifer 
as  to  the  view  which  constitutional  law  takes  of  the 
railway  monopoly  in  transportation,  they  agree  that 
the  legislature  can  enforce  the  separation  of  the  pro- 
prietary control  of  the  railway,  with  its  right  to  take 
tolls,  from  the  business  of  the  carrier  upon  it.* 

*  Anotlier  assertion  of  the  same  idea  is  fount!  in  Judsc  Emmons's  very 
exhaustive  opinion  in  Tiilcott  rs.  Township  of  Pine  Grove  (1  Flippin, 
151).  He  said  :  "  It  is  intimated  tliat  if  the  cars  of  all  other  companies 
could  enter  upon  and  use  the  road,  this  too  would  make  tlie  difference 
between  legality  and  unconstitutionality.  Protesting  again  tliat  we  arc 
utterly  unable  to  sec  in  this  anytliing  more  than  a  mere  mode  of  use,  in 
reference  to  which  the  law-making  power  beyond  doubt  is  the  sole  judge, 
as  Judge  Cooley  as  an  author  so  clearly  shows,  nevertheless  we  add  that 


392  The  Railways  and  the  Republic. 

The  claim  that  this  monopoly  is  essential  to  the  prosi- 
er conduct  of  the  railways,  was  set  forth  judicially  with 
distinctness  by  Judge  McCrary,  in  one  of  the  leading 
exj^ress  cases,*  in  which  he  founded  tlie  railway  com- 
pany's right  of  excluding  all  other  carriers  upon  "  the 
safety,  not  only  of  property,  but  of  life  as  well."  In 
this  opinion,  the  judge,  very  sincerely  and  in  good  faith, 
undertook  to  settle  a  question  of  practical  railroading 

this  criticism  also  we  think  is  as  unfounded  in  fact  as  the  former  one."' 
The  court  then  says,  that  the  general  law  secures  connections  and  facili- 
ties for  other  roads;  an  assertion  whicli  may  be  seriously  questioned. 

*  In  the  case  of  the  Southern  Express  Company  against  Memphis  and 
Little  Rock  Railroad  (8  Federal  Reporter,  799),  the  judge  quoted  the 
sixth  section  of  the  cliarter  as  follows:  "The  said  comj^any  shall  have 
the  exclusive  right  of  transportation  or  conveyance  of  persons,  goods, 
merchandise,  or  produce,  over  said  railroad  by  them  to  be  constructed." 
With  regard  to  this  section  the  court  said  :  "  This  language  must  l)e  con- 
strued in  the  light  of  the  history  of  the  construction  of  railroads  in  this 
country.  W'lien  first  introduced  they  were  regarded  only  as  improved 
highways,  subject  to  be  used  by  the  general  public.  It  was  thought  that 
any  person  ought  to  have  the  right  to  place  his  vehicle  upon  tlie  track 
of  a  railroad,  and  to  transport  his  own  freight  upon  it,  paying  toll  for  the 
use  of  the  track ;  and  it  was  considered  necessary,  in  order  to  limit  the 
use  of  the  road,  to  give  a  particular  person  or  company  the  exclusive  right 
to  operate  it ;  that  such  exclusive  right  should  be  resei-ved  by  law.  Ex- 
perience very  soon  demonstrated  that  it  was  not  practicable  to  apply  to 
the  system  of  railways  all  tlie  principles  that  obtained  in  defining  and 
regulating  the  rights  of  the  public  with  respect  to  the  common  highway. 
Certain  innovations  were  necessary.  Certain  exclusive  privileges  were 
inevitable,  in  order  to  secure  safety  and  liberty  in  the  transjiortation  of 
persons  and  property  by  the  use  of  cars  and  steam-engines.  One  of  the 
first  of  these  to  be  generally  recognized  was  that  the  operation  of  every 
railroad  should  be  under  the  control  of  a  single  head.  It  was  seen  that 
the  safety,  not  only  of  property,  but  of  life  as  well,  depended  upon  vest- 
ing in  the  owuer  of  the  track,  or  the  company  operating  the  road,  the  ex- 
clusive right  to  say  what  vehicles  should  be  placed  upon  the  track,  or,  in 
other  words,  the  exclusive  right  of  transportation  and  conveyance  of  per- 
sons and  property  over  their  lines.  An  examination  of  the  railroad  char- 
ters, adopted  by  the  various  legislatures  of  the  Union,  will  show  that  this 
provision  has  been  inserted  in  nearly  all  of  them,  in  one  form  or  another." 


The  Puhlic  Highway.  893 

as  if  it  had  been  a  question  of  law,  and,  as  usual,  when 
the  cobbler  goes  beyond  his  last,  made  some  striking 
errors.  Experience  has  doubtless  proved  that  it  is  im- 
possible  to  apply  to  the  railway  the  precise  regulations 
which  serve  well  on  the  common  higliwa}^  x\s  expe- 
rience had  proved  the  same  thing  of  canals,  before  rail- 
ways were  invented,  reason  could,  from  the  first,  tell  all 
who  studied  the  subject  that  still  other  rules  must  be 
adopted  for  a  new  kind  of  highway.  A  witty  newspa- 
per writer,  two  or  three  j^ears  ago,  sought  to  disprove 
the  theory  that  the  railway  is  a  public  highway,  by  say- 
ing that  if  it  is  so,  it  is  necessaiy,  when  t^vo  trains  meet 
each  other,  that  each  shall  turn  out  to  the  right  until 
they  have  passed.  He  might  as  appositely  have  made 
the  same  remark  of  canals,  or  have  said  that  if  two  rail- 
way trains  meet  each  other,  one  must  stop  and  slacken 
its  tow-rope,  while  the  other  passes  over  it.  As  railway 
trains  have  neither  tow-ropes  nor  tow-paths,  so  they 
have  no  constant  facilities  for  turning  out  to  the  right; 
but  in  each  case,  whether  of  railway,  canal,  or  turnpike, 
the  peculiar  form  of  highway  and  method  of  use  require 
not  only  appropi'iate  vehicles,  but  also  appropriate  and 
peculiar  rules  for  their  movement  and  government. 
The  stage-coach  requires  one  set  of  rules;  the  canal- 
boat  another;  the  steamers  on  the  lakes  or  livers  must 
have  a  third  and  wholly  different  code  of  regulations  ; 
and  the  railway  train  calls  for  a  fourth,  equall}'  dis- 
tinct in  character  from  all  the  rest.  But  how  does  this 
necessity  for  adapting  regulations  to  the  methods  of 
use  demonstrate  "  the  impracticability  of  ''applying  the 
principles  that  obtained  in  defining  and  regulating  the 
rights  of  the  public"'  in  other  highways  to  the  rail- 
ways?    To  adapt  regulations  to  particular  uses  is  one 


394  The  Hallways  and  the  RejpuUic. 

thing;  to  abandon  the  principles  which  underlie  their 
existence  is  another.  While  the  rules  for  use  vary  with 
the  nature  of  canals,  turnpikes,  and  rivers,  the  princi- 
ple that  the  public  shall  freely  use  the  highways,  un- 
der these  rules,  is  preserved  in  them  all.  Wholly  dis- 
tinct rules  are  necessary  for  the  movement  of  trains  on 
railways ;  but  the  principle  that  the  public  has  a  right 
to  the  free  use  of  the  tracks,  either  for  private  trans- 
portation or  as  common  carriers,  should  be  universal 
and  permanent. 

There  are  other  gaps  in  the  judge's  logic.  It  was 
found  inevitable,  he  says,  "  to  secure  safety  and  celerity 
in  the  transportation  of  persons  and  property  by  the 
use  of  steam-engines,"  that  the  operation  of  every  rail- 
road should  be  under  the  control  of  a  single  "  head." 
This  must  be  admitted  of  the  control  of  trains  in  mo- 
tion;  but  it  by  no  means  follows  that  the  engines  and 
cars  must  be  owned  by  a  single  coi'poration,  or  loaded 
by  the  employees  only  of  the  railroad,  or  that  the 
freiglit  may  not  be  taken  and  transferred  by  many 
competing  carriers  over  the  same  track,  at  whatever 
charges  may  be  fixed  by  free  competition.  Again,  the 
judge  says,  "  It  was  seen  that  the  safety,  not  only  of 
property,  but  of  life  as  well,  depended  upon  vesting  in 
the  owner  of  the  track,  or  the  company  operating  the 
road,  the  exclusive  right  to  say  what  vehicles  should 
be  placed  upon  the  track,  or,  in  other  words,  the  exclu- 
sive right  of  transportation  and  conveyance  of  persons 
and  property  over  their  lines."  This  statement  is  in 
part  indisputable.  The  railway  company  must  have 
power  to  require  vehicles  suited  to  the  road.  It  must 
be  able  to  exclude  from  its  track  a  stage-coach  or  a 
steamboat,  cars  that  are  out  of  repair,  or  engines  in 


The  Piiblic  Highway.  395 

clauger  of  explosion.  But  the  judge  goes  too  far.  It 
does  not  follow  that  the  company  must  own  the  engines 
and  cars.  If  the  train-despatcher  fully  controls  trains 
in  motion,  it  can  make  no  difference  to  the  safety  of 
the  service  who  owns  the  trains,  or  what  charges  are 
made  by  the  owners.  The  necessity  for  exclusive  own- 
ership by  the  company  is  fully  disproved  by  experi- 
ence, since  two  or  more  companies  have  often  used  in 
common  considerable  sections  of  road  with  safety  and 
success.  Indeed,  on  every  important  railway,  cars  l)e- 
longing  to  scores  of  different  companies  are  running 
every  day  in  the  vear.  This  beinof  the  case  even  while 
competition  upon  the  railway  is  suppressed,  it  can  be 
done  just  as  well  and  in  the  same  way,  if  the  law  re- 
stores competition  and  gives  it  full  play. 

Let  the  railway  corporations  retain  all  powers  neces- 
sary to  direct  the  movement  of  trains  with  safety  and 
speed ;  but,  under  this  direction,  let  the  carrying  busi- 
ness be  open  to  all  comi3etitors.  This  plan  simply  sep- 
arates two  distinct  kinds  of  commercial  service.  It  is 
no  more  necessary  to  combine  the  work  of  receiving, 
classifying,  and  loading  and  delivering  freight,  and  of 
fixing  and  collecting  charges,  with  the  work  of  control- 
ling the  trains  in  motion,  than  it  is  to  combine  the  min- 
ing: of  coal  with  the  manufacture  of  iron  in  blast  fur- 
naces,  or  the  smelting  of  iron  with  the  making  of  rails 
in  rolling-mills.  If  any  one  should  claim,  for  the  pro- 
prietors of  a  rolling-mill,  the  exclusive  right  to  manu- 
facture pig-iron,  or  to  mine  coal  or  ore  for  their  works, 
every  one  would  see  in  the  claim  a  mere  pretext  for 
concentratinir  these  industries  under  the  control  of  a 
few  large  corporations.  The  only  way  to  jirotect  in- 
dustrial freedom  is  to  open  each  branch  of  industry  to 


396  The  Hallways  and  the  RejpuUic. 

every  mau  on  equal  terms.  The  owner  of  the  rolling- 
mill  may  own  and  work  blast  furnaces  or  mines  if  he 
will ;  but  others  may  still  build  furnaces  or  open  mines 
in  free  competition.  The  same  principle  should  be  ap- 
plied to  the  railway.  The  pretence  that  only  a  single 
corporation  must  have  power  to  carry  freight  or  move 
trains  over  a  road  is  set  up  solely  to  support  a  need- 
less monopoly. 

At  present  the  only  powers  essential  to  the  prop- 
er discharge  of  its  functions  by  the  railway  company 
are  the  exclusive  control  of  its  tracks,  the  right  of 
directing  and  inspecting  the  rolling-stock,  and  the 
franchise  to  take  uniform  tolls.  It  is  possible  that 
the  advance  of  invention  might  make  it  necessary  to 
extend  these  powers.  While  the  motive  power  on  rail- 
ways consists  of  steam  locomotives,  there  is  no  more 
reason  why,  with  proper  guarantees  for  safety,  the 
power  should  not  be  furnished  under  free  competition, 
upon  these  roads,  than  in  transportation  by  steam  on 
the  rivers.  The  skill  and  care  required  for  the  man- 
ao-ement  of  locomotives  is  not  sireater  than  for  river 
steamboats,  wdiile  the  risk  of  accidents,  especially  in 
carrying  freight,  is  much  greater  in  the  latter  case.  If, 
in  the  progress  of  invention,  electricity  should  displace 
steam  on  the  railways,  and  an  electric  current  on  the 
track  should  become  the  best  motive  power,  it  must 
necessarily  be  furnished  by  the  company  owning  the 
road.  Only  one  authority  could  provide  such  a  mo- 
tive power  on  any  one  line,  and  the  work  would  nat- 
urally belong  to  the  company  which  constructs  and 
maintains  the  track. 

The  question  of  tolls  presents  little  practical  difficul- 
tv.     The  toll  should  be  a  reasonable  and  uniform  rate 


The  Public  Highway.  397 

per  ton  per  mile  for  freight,  and  per  car  per  mile  for 
empty  cars,  such  as  will,  in  the  aggregate,  yield  reve- 
nue enough  to  repair  and  maintain  the  track,  to  pay 
fixed  charges,  and  leave  a  fair  dividend  upon  the  hona- 
fide  capital  invested.  The  toll  should  not  be  the  same 
upon  all  roads.  The  road  which  takes  from  the  point 
of  production  250,000  tons  of  freight,  which  would  be 
worthless  but  for  this  outlet,  is  both  forced,  in  order  to 
earn  a  return  on  its  investment,  and  justified  by  its  ser- 
vice to  the  producer,  in  charging  a  greater  I'ate  per  ton- 
mile  than  the  trunk  line  which  moves  five  or  ten  mill- 
ion tons  and  forms  part  of  a  great  highway  of  the  na- 
tion. While  the  rates  on  difterent  lines  must  vary,  the 
reasonable  toll  for  each  could  easily  be  calculated  from 
its  expenses,  fixed  charges,  and  gross  tonnage.*     The 

*"  The  following  figures  are  given  for  the  purpose  of  approximately 
showing  the  rate  of  toll  per  ton-mile  on  freight  which  various  railroads, 
accommodating  different  kinds  of  traffic,  must  charge  in  order  to  keep 
the  roads  in  repair  and  obtain  a  good  return  on  their  capital.  In  the 
case  of  one  of  the  most  prosjierous  trunk  lines,  the  low  charge  of  less 
than  ^^  cent  jier  ton-mile,  for  the  use  of  the  track  by  outside  carriers, 
would  be  remunerative  to  the  company.  On  the  least  prosperous  of  tlie 
trunk  lines,  with  an  immensely  watered  capitalization,  and  supposing  it 
to  earn  G  per  cent,  interest  and  dividends — which  it  has  never  done — 
.431  of  a  cent  per  ton-mile  would  yield  the  needed  revenue.  On  minor 
railways,  the  rate  may  rise  as  high,  for  example,  as  2.43  cents  on  the  Den- 
ver and  Rio  Grande  Railway,  where  the  cost  of  construction  is  high  and 
the  volume  of  business  small. 

Main  Line  of  the  Pennsylvania  Railuoad, 
Ton-miles  of  freight 5,000,083,175 

Expenditures. 

Maintenance  of  way $3,000,491  47 

General  expenses 003,05'J  89 

Interest  on  stock  and  bonds,  $150,000,000,  at 

0  per  cent 9,000,000  00 

Total $13,264,151  3G 

Deduct  GO  p;;r  cent,  of  passenger  earnings  of 

$6,115,323 3,609,253  80 

Tolls  required  from  freight $9,504,897  5(i 

or  0.189  cent  per  ton-mile. 


398  The  Railways  and  the  EepuUic. 

periodical  adjustment  of  the  tolls  for  any  railway  should 
be  based  upon  the  traffic  for  the  corresponding  period 
immediately  preceding.  Let  public  interests  be  fully 
protected  against  combinations  and  discriminations,  and 
there  need  be  no  public  objection  to  making  a  liberal 

New  York,  Lake  Erie,  and  Western. 

Ton-miles  of  freight 2,306,946,893 

Expenditures. 

Maintenance  of  way $2,720,173  91 

Fixed  chai-ijes  on  debt 4,605,392  53 

6  per  cent,  dividend  on  $85,000,000  stock...      5,100,000  00 

Total $12,425,566  43 

Deduct  20  per  cent.,  proportion  of  passenger 

earnings  to  gross  earnings 2,485,113  28 

Revenue  required $9,940,453  15 

Rate  required  per  ton-mile 0.431  cent. 

Lehigh  Valley  Railroad. 

Ton-miles  of  freiglit 704,020,328 

Expenditures. 

Maintenance  of  way $1,918,080  31 

General  ex^ienses 206,613  51 

Interest 2,031,674  73 

Dividends 2,210,378  00 

Total $6,366,746  54 

Deduct  60  per  cent,  of  passenger  earnings....        467,783  87 

Revenue  required $5,898,963  67 

Rate  required  per  ton-mile 0.838  cent. 

(To  pay  6  per  cent,  on  capital  and  debt,  -^^  of  a  cent  per  ton-mile  would 
be  ample,  as  the  above  calculation  includes  10  per  cent,  dividends  on  pre- 
ferred stock,  8  per  cent,  on  common,  and  7  jier  cent,  on  $6,000,000  of  the 
debt.) 

Chicago  and  Northwestern  Railway. 

Ton-miles  of  freight 1,183,829,358 

Expenditures. 

Maintenance  of  way $3,252,226  24 

General  expenses  and  taxes 2,417,288  98 

Interest 4,288,633  05 

Dividends  (preferred  stock,  8  per  cent.) 1,781,162  00 

Dividends  (common  stock,  7  per  cent.) 1,107,377  00 

Total $12,846,687  27 

Deduct  60  per  cent,  of  passenger  earnings...      3,671,769  45 

Revenue  required $9,174,917  83 

Rate  required 0.774  cent. 


The  Public  Highway.  399 

margin  in  calculating  tolls,  granting  the  corporation 
the  benefit  of  any  gain  in  traffic  as  an  addition  to  its 
profits.  With  the  public  rights  fully  secured,  and  the 
prevailing  evils  removed,  the  prosperity  of  the  railway 
corporations  would  be  entirely  consistent  with  the  pub- 
lic welfare.  Nor  do  the  necessary  difi*erences  in  tolls 
upon  difi'erent  railways  present  any  insuperable  diffi- 
culty. The  fact  that  the  Erie  Railway,  to  pay  divi- 
dends, must  charge  twice  as  great  a  toll  as  the  Pennsyl- 
vania Kaihvay,  would  indeed  raise  the  question  wheth- 
er tolls  must  produce  dividends  for  fictitious  stock. 
The  tolls  ought  certainly  to  earn  dividends  upon  actual 
constructive  capital;  but  in  this  matter  also,  free  com- 
petition will,  in  the  end,  work  out  a  just  result.  For 
if  a  road  charges  a  materiall}^  greater  rate  per  ton-mile 
than  its  competitor,  in  the  effi^rt  to  make  dividends  on 
watered  securities,  it  will  simply  drive  the  traffic  to  its 
competitors.     Let  it  be  settled  that  the  tolls  shall  be 

Denver  akd  Rio  Grande  Kailway. 
Ton-miles  of  freiglit 193,178,436 

Expenditures. 

Mainteuance  of  way $1,440,950  61 

Miscellaneous  expenses 281,380  27 

Interest  on  bonds 1,763,891  66 

Dividends,  6  per  cent 2,130,000  00 

Total §5,615,223  54 

Deduct  60  per  cent,  of  passenger  earnings...         957,126  75 

Revenue  required $4,658,095  79 

Rate  required 2.42  cents. 

In  these  cases  the  proportion  of  expenses  to  earnings  is  about  60  per 
cent.,  and,  accordingly,  tliat  percentage  of  passenger  earnings  is  deduct- 
ed for  the  passenger  traffic.  In  the  case  of  the  Erie  a  slightly  dillerent 
method  was  used,  the  ratio  of  passenger  earnings  to  gross  earnings  be- 
ing deducted ;  while  in  the  case  of  the  Denver  and  Rio  Grande,  the  ratio 
of  expenses  being  65  percent,  that  proportion  was  deducted.  These 
figures  are,  of  course,  only  intended  to  indicate  ajiproximately  how  tolls 
might  be  calculated. 


400  The  Railways  and  the  Rejpublic. 

the  same  to  all  alike  on  any  single  line,  and  competi- 
tion will  insure  their  practical  equality  on  competing 
roads.  In  a  case  "wliere  the  traffic  is  as  yet  undevel- 
oped, the  rate  of  toll  necessary  to  earn  dividends  might 
be  prohibitory,  as  is  shown  by  the  figures  taken  from  the 
Denver  and  Kio  Grande  report  for  1883.  The  practi- 
cal effect  might  be  to  leave  the  company  the  exclusive 
privilege  of  carrying  freight,  for  the  first  years  of  its  ex- 
istence ;  and  this  would  be  no  more  than  justice.  It 
would  inflict  no  serious  hardship  on  the  public,  that 
the  company  which  embarks  its  capital  in  a  new  enter- 
prise shall  have  reasonable  profits,  provided  it  be  per- 
mitted to  make  no  unjust  discriminations,  nor  to  charge 
oppressive  rates.  Wlien  its  trafnc  becomes  so  great 
that  moderate  tolls  will  yield  a  fair  profit  on  the  in- 
vestment, its  track  will  be  thrown  open  to  the  services 
of  all  carriers,  and  its  profits  will  be  maintained.  This 
insures  practical  justice  to  all  interests.  All  these  de- 
tails with  regard  to  tolls  are,  of  course,  subject  to  fur- 
ther discussion  before  they  can  be  settled  ;  but  it  seems 
clear  enough  that  general  rules  may  be  framed  for  fix- 
ing tolls,  in  accordance  with  the  circumstances  of  each 
railway. 

It  is  not  hard  to  picture  the  effect  of  such  a  reform 
upon  the  railways.  Let  the  right  of  every  person  to 
run  a  railway  train  over  any  track  to  which  he  may 
take  his  engines  and  cars,  be  2:)laced  upon  the  same  ba- 
sis as  the  I'ight  to  run  a  steamer  over  any  river,  or  a 
canal-boat  over  any  canal,  and  the  practices  of  combi- 
nation and  discrimination,  which  distinguish  the  use 
of  the  railways  from  that  of  other  liighways,  will  van- 
ish. It  is  not  claimed  that  this  would  bring  a  millen- 
nium in  transportation.     Common  carriers  would  still 


The  Pullic  Highway.  401 

grasp  excessive  profits,  if  they  could ;  and  some  rail- 
way officials  would  doubtless  he  willing  to  enricb 
themselves  by  an  illegitimate  exercise  of  any  powers 
within  their  reach.  But  the  leading  evils  which  are 
the  subject  of  this  work  would  be  effectually  and  per- 
manently cured,  by  demolishing  their  causes;  with  the 
right  of  carrying  freight  over  the  railways,  free  to  all 
on  equal  terms,  the  power  of  railway  corporations  to 
enforce  disci'iminations,  and  to  build  up  other  monop- 
olies by  combinations  with  other  railways,  would  be 
destroyed. 

The  first  effect  of  the  reform,  if  it  merely  gave  each 
railway  the  riglit  to  send  its  trains  over  connecting 
tracks,  would  be  to  destroy  the  possibility  of  artifi- 
cially sustaining  rates  by  pools.  Even  if  it  were  pos- 
sible to  bring  all  existing  competitors  into  a  single 
combination,  the  certain  knowledge  that  new  competi- 
tion would  at  once  spring  up  would  render  such  com- 
bination useless.  Arbitrarily  to  increase  rates  would 
only  be  to  bring  new  capital  into  the  business  of  trans- 
portation, and  thus  indefinitely  to  exj)and  competition. 
AVhen  tlie  law  enables  $100,000  of  capital  to  compete 
fairly  with  the  mightiest  pool,  the  power  of  that  pool 
over  commerce  is  no  lonfrer  dans^erous.  On  the  other 
hand,  such  combinations  being  powerless,  rates  would 
be  determined,  on  a  natural  and  legitimate  basis,  by 
the  cost  of  service.  The  fact  that  all  efforts  to  drive 
competition  permanently  from  the  field  must  be  futile 
would  make  the  cliai'ges  for  transportation  stable.  No 
gigantic  corporation  could  assert  its  control  of  the  busi- 
ness, and  drive  its  competitors  to  accept  its  terms,  by 
striking  off  half  or  three  quarters  of  its  freight  charges 
at  a   blow;    or  disturb  the  calculations  of  trade  by 

2G 


402  The  Railways  and  the  Be^ublic. 

restoring  the  old  rates  with  scarcely  less  abruptness. 
No  corporation  has  such  vast  resources  that  it  can  un- 
dertake to  drive  a  hundred  present,  and  ten  thousand 
possible  competitors  out  of  the  field  by  such  means. 
Where  competition  is  free,  as  in  all  legitimate  business, 
the  fluctuation  of  rates  will  be  gradual  and  slight,  com- 
pared with  the  violent  changes  now  inflicted  uj)on  com- 
merce. New  economies  and  inventions  for  improving 
transportation  Avould  exert  their  proper  eftect,  in  reduc- 
ing charges  gradually  and  progressively.  If  competi- 
tion were  excessive,  rates  might  be  brought  down  to 
the  cost  of  service ;  and  as  the  lack  of  profit  reduced 
the  competition,  the  restoration  of  charges  to  a  paying 
basis  would  be  as  sjradual  as  their  decline.  The  first 
eff"ect  of  making  competition  universal  by  this  means 
would,  therefore,  be  to  make  pooling  impossible,  and  to 
do  away  at  once  with  the  oppressive  rates  which  the 
pools  maintain,  and  with  the  ruinous  rates  which  their 
conflicts  produce.  Violent  fluctuations  would  cease, 
and  changes  in  freight  rates  would  become  as  moder- 
ate  as  the  rise  and  fall  of  any  other  commodity,  whose 
price  is  regulated  by  the  unrestricted  laws  of  demand 
and  supply. 

Another  effect  of  this  reform,  no  less  valuable,  would 
be  the  permanent  abolition  of  all  vital  inequalities  and 
favoritism  to  shippers,  by  destroying  the  power  of  the 
railways  to  make  such  discriminations.  It  has  been 
seen  that  this  power  rests  entirely  in  the  exclusive  con- 
trol, by  each  railway,  of  transportation  over  its  own 
track;  so  that  a  number  of  railways  can  combine  to 
favor  or  oppress  an  interest  or  an  industry.  Make  the 
privilege  of  transportation  free  to  all,  and  this  power 
is  utterly  destroyed.     If  a  shipper  cannot  get  as  good 


The  PubliG  nighway.  403 

rates  or  facilities  as  his  competitors  from  one  railway 
carrier,  he  can  get  them  from  another.  If  all  the  car- 
riers at  a  single  point  should  combine  to  oppress  any 
interest,  carriers  can  be  found  elsewhere  to  bring  their 
trains  to  its  relief.  Even  in  the  impossible  contingen- 
cy that  all  who  are  engaged  in  transportation  should 
refuse  to  compete  for  traffic,  still  merchants  or  manu- 
facturers could  run  their  own  trains.  As  long  as  any 
shipper  can,  by  investing  a  few  thousand  dollars,  secure 
the  carriage  of  his  freight  at  nearly  first  cost,  no  rail- 
way or  common  carrier  can  destroy  his  trade  by  dis- 
criminating rates.  In  any  month  of  the  period  in 
which  the  independent  petroleum  refiners  were  strug- 
gling against  the  growth  of  the  Standard  monopoly, 
there  were  railways  enough  which  would  gladly  have 
transported  their  freight  on  fair  and  equal  terms,  if  they 
could  have  reached  the  refineries  with  their  cars.  At 
any  time  before  they  finally  succumbed  to  the  Standard 
the  refiners  could  have  raised  the  means  to  buy  all  the 
cars  and  engines  rerpiired  for  their  transportation,  if 
they  could  have  taken  their  cars  over  the  railways  to 
market.  Had  these  railways  been  conducted  as  pub- 
lic highways  ten  3'ears  ago,  the  Standard  Oil  iniquity 
Avould  have  been  impossible.  But  each  of  the  four 
trunk  lines  was  able  to  exclude  competition  from  its 
tracks,  and,  by  combining  to  destroy  the  competition 
of  independent  refiners,  they  were  able  to  crush  out  a 
prosj)ei'ous  interest,  and  to  build  up  in  its  place  a 
gigantic  and  unscrupulous  monopoly. 

The  proposed  refoi'm  offers  a  complete  remedy  for 
all  inequitable  adjustments  of  rates  between  localities. 
It  is  not  to  be  supposed  that  it  would  give  the  inte- 
rior point  the  very  same  rates  for  transportation  i)er 


404:  The  liailways  and  the  Republic. 

ton-mile  as  the  great  distributing-point;  or  that  the 
farming  regions  of  the  Middle  States  could  send  their 
produce  to  market,  at  a  charge  as  mucli  lower  than 
that  on  grain,  from  Nebraska  or  Dakota,  as  the  dis- 
tance is  less.  But  the  cost  of  transportation,  from  all 
places,  would  be  fixed  by  the  natural  forces  of  compe- 
tition, which  would  bring  it  into  due  relation  to  the 
cost  of  service.  Even  if  this  era  of  pools  and  fictitious 
business  methods  has  shaken  the  public  faith  in  these 
forces,  every  locality  which  is,  or  imagines  that  it  is, 
unjustly  treated  in  the  rates  of  its  freight  traffic  could, 
by  the  investment  of  a  few  thousands  of  dollars,  es- 
tablish a  transportation  line  for  its  own  freight,  in- 
stead of  having  to  lay  out  millions  for  a  comi^eting 
road.  If  Pittsburgh,  Buffalo,  or  Indianapolis  should 
have  a  real  or  imaginary  grievance,  in  the  lower  rates 
given  to  Chicago  or  St.  Louis,  the  former  cities  would 
have  a  remedy  within  their  own  grasp.  A  quarter  of 
a  million  of  dollars  would  give  the  merchants  of  these 
cities  engines  and  cars  to  take  their  goods  wherever 
they  chose,  over  any  railway  that  they  might  select, 
on  payment  of  regular  tolls.  It  is  not  likely  that 
action  of  this  kind  would  be  often  necessary.  The 
power  of  competition  to  fix  the  just  price  for  any  ser- 
vice is  practically  universal,  when  it  is  perfectly  free. 

Besides  the  great  results  already  pointed  out,  there 
are  others  to  be  expected  from  the  proposed  reform, 
which,  while  they  may  seem  of  minor  importance, 
would  yet  be  of  real  public  value.  Thus  it  would 
take  away  the  power  of  railways  to  obstruct  other 
means  of  communication,  a  power  often  exercised  by 
one  railway  against  another,  and  by  a  combination  of 
railways  against  the  water  routes.     One  great  trunk 


Tlie  Pxiblic  Hujlivoay.  405 

liue  can  shut  off  anotber  from  its  connection  with  the 
metropolis,  by  holding  a  connecting  link,  or  Ly  the 
well-timed  purchase  of  the  shares  of  a  subsidiary  road 
which  its  rival  needs.  A  central  railway  can  exclude 
a  lateral  road,  which  has  no  other  outlet,  fVom  all  com- 
munication with  the  outer  world,  until  the  latter  is 
forced  to  surrender  its  independent  existence,  upon 
such  terms  as  the  master  corporation  may  dictate.  A 
combination  of  railways  may  force  an  important  water 
route  into  disuse,  except  for  merely  local  traffic,  as  the 
trunk  lines  have  done  in  the  case  of  the  Ohio  river,  by 
discriminating  against  it,  and  in  favor  of  their  railway 
allies,  west  of  Pittsburgh  and  Wheeling.  All  these 
combinations  and  discriminations,  designed  to  exclude 
competition,  or  to  force  subsidiary  lines  to  sul)jection, 
violate  the  character  of  the  public  highway  and  the 
law  as  expressed  in  many  decisions.  But,  like  other 
illegal  practices,  they  are  maintained  and  the  law  is 
habitually  nullified  by  the  railways.  Let  the  roads 
be  opened  to  connecting  roads  on  equal  terms,  and 
these  practices  will  defeat  themselves.  If  a  great  rail- 
way refuses  equitable  rates  to  a  smaller  one,  the  latter 
can  run  its  own  trains  over  the  tracks  of  the  former. 
If  the  Pennsylvania  Railroad  succeeds  in  preventing 
the  Paltimore  and  Ohio  from  reaching  New  York  with 
its  own  line,  the  Baltimore  and  Ohio  can  send  its 
freight  cars  and  engines  over  the  Pennsylvania  Kail- 
road.  Carriers  from  the  Mississippi  and  Missouri  riv- 
ers, })y  way  of  the  Ohio,  could  command  their  own 
railway  facilities,  fi'om  Pittsburgh  or  Wheeling  to  New 
York,  Philadelphia,  or  15altimore.  The  foundation  of 
monopoly  in  freight  traffic  being  destroyed,  the  railway 
would  lose  both  the  motive  and  the  power  to  punish 


406  The  Railways  and  the  RejpvhliG. 

shippers  for  selecting  a  route  for  their  freight  beyond 
its  line.  The  railway  manager  could  no  longer  say  to 
the  shipper  in  his  rates:  "Unless  your  freight  patron- 
izes the  connecting  road,  -which  it  is  my  interest  to  fa- 
vor, you  mast  pay  double  or  triple  rates  for  the  use 
of  my  line."  The  power  to  drive  freights  to  particu- 
lar routes  by  differential  rates  would  be  taken  away. 
Commerce  might  seek  the  cheapest  and  best  avenues 
for  traffic,  and  freely  use  any  highway  established  by 
the  state.  Besides,  the  railway  interests,  as  a  whole, 
Avould  be  sounder  and  stronger,  if  the  smaller  lines 
were  made  independent  of  the  more  powerful  ones. 
It  is  not  for  the  welfare  of  the  railways,  as  a  class, 
that  the  great  fish  shall  always  swallow  the  small 
ones.  It  may,  indeed,  in  a  narrow  sense,  be  for  the 
interests  of  those  which  swallow.  But  the  sound  and 
healthy  growth  of  the  whole  railway  system  requires 
that  all  its  members,  small  or  great,  should  have  equal 
chances  for  life.  The  character  of  railway  investments 
will  be  improved,  when  new  roads  can  be  built  with- 
out the  sure  prospect  of  yielding  up  their  autonomy, 
and  most  of  their  profits,  to  some  main  line,  before  they 
can  obtain  the  connections  they  need.  It  can  be  done 
when  the  right  of  every  railroad  company,  or  of  every 
carrier,  to  transport  freight  over  any  line,  at  the  same 
rate  of  toll,  is  establislied  and  enforced.  Such  a  reform 
would  prevent  the  greater  roads  from  first  freezing  out, 
by  discriminating  rates,  and  then  absorbing,  all  the 
branches  and  feeders  dependent  on  them ;  and  thus 
end  a  practice  as  hostile  to  the  railway  system  as  to 
the  interests  of  the  public  at  large. 

In  short,  the  reform  proposed  will  afford  a  practical 
solution  of  every  issue  between  the  railways  and  the 


The  Public  Highway.  407 

people.  Let  it  once  be  fully  eamed  out,  and  all  the 
detailed  questions  of  rates,  the  discussion  of  which  is 
necessary  to  an  understanding  of  the  present  raihvay 
methods,  will  settle  themselves.  If  there  is  any  unsus- 
pected virtue  in  the  long  hauls,  which  makes  it  as  prof 
itable  for  the  raihvay  to  take  cotton  from  Memphis  to 
the  seaboard  at  $1  per  bale  as  to  take  it  from  local 
points,  half  the  distance,  for  $3.50,  free  competition  will 
prove  it.  If  live-stock  and  dressed  beef  have  some  oc- 
cult peculiarities,  which  make  the  latter  cost  seventy- 
five  per  cent,  more  to  carry  than  an  equal  weight  of 
the  former,  free  competition  will  maintain  the  differ- 
ence. But  if  these  anomalies  arise  from  imperfect  com- 
petition, which  brings  competitive  traffic  near  the  cost 
of  service,  and  extorts  a  compensation  where  there  is 
no  competition ;  or  if  they  are  founded  on  the  power 
of  the  railways  to  adjust  rates  for  the  benefit  of  pri- 
vate investments  by  their  managers,  they  will  be  re- 
moved and  rates  will  be  made  equitable.  Under  free 
and  open  competition  it  is  certain  that  there  would  be 
no  such  disproportion  in  the  rates  compared  with  the 
cost  of  service  as  now  prevails.  The  rates  for  carrying 
freight  a  tliousand  miles  would  not  be  the  same  per 
mile  as  for  a  hundred ;  for  the  terminal  charges  are  a 
constant  element,  as  great  in  the  one  case  as  in  the 
othei".  But  it  would  be  impossible,  for  instance,  tliat 
the  Central  Pacific  Railway  should  charge  $800  for  a 
car  of  freight  from  New  York  to  Virginia  City,  while 
accepting  $300  for  carrying  it  from  New  York,  through 
Virginia  City,  hundreds  of  miles  farther  to  Sacramento. 
The  greatest  effect  of  the  reform  would  be  to  bring 
rates  into  proper  relation  to  the  cost  of  service.  The 
fixed  element  in  that  cost  would  then  be  the  stated 


408  The  Railways  and  the  Republic. 

toll  per  ton-mile  necessary  to  maintain  tbe  railway  in 
repair,  and  to  yield  a  fair  profit  on  the  capital  invested 
in  it.  Whatever  differences  of  rates  arise  under  the  nat- 
ural and  legitimate  conditions  of  transportation,  would 
remain  under  free  competition.  Whatever  differences 
are  produced  by  the  monopoly  of  the  i-nilways  as  car- 
riers, which  hinders  or  disturbs  competition,  or  discrim- 
inates between  particular  interests,  will  be  abolished. 
When  transportation  on  the  railways  is  as  open  as  on 
canals  or  rivers,  one  locality  can  have  no  advantage 
over  another,  save  as  it  is  legitimately  entitled  to  it  by 
superior  accessibility  or  natural  facilities  for  business. 
The  localities  which  enjoy  the  cheapest  rates  will  be 
those  from  which  the  cost  of  transportation  is  least,  or 
those  which  are  able  to  furnish  the  largest  traffic  and 
attract  the  greatest  competition.  Thus,  under  the  legit- 
imate laws  of  trade,  industries  would  seek  the  locali- 
ties best  adapted  to  them,  and  if  any  locality  secured 
better  advantages  of  transportation  for  its  mines  or  its 
mills  than  another,  it  could  only  be  as  the  result  of 
the  natural  tendency  of  mercantile  or  industrial  enter- 
prises, to  go  where  they  Avill  be  most  economically  and 
advantageously  prosecuted. 

Let  competition  have  its  free  course  in  every  de- 
partment of  railway  traffic,  and  it  will  fix  the  rates  of 
transportation  so  as  fairly  to  reward  the  service  ren- 
dered, give  to  all  branches  of  trade  their  just  due  in 
relative  charges,  and  make  the  fluctuations  in  rates  of 
freight  as  gradual  and  moderate  as  they  are  in  lake 
or  ocean  transportation.  The  completeness  and  per- 
manence of  free  competition  is  to  be  secured  by  tlie 
method  proposed  in  this  chapter.  When  the  law  main- 
tains the  right  of  every  man  to  carry  freight  over  the 


The  Public  Highway.  409 

railways,  subject  to  proper  tolls  and  necessary  restric- 
tions, the  public  interests  which  depend  on  free  com- 
merce ^vill  be  fully  protected.  Let  the  work  of  rail- 
way cor^^orations,  in  building  and  maintaining  tracks, 
be  kept  distinct  from  the  l)usiuess  of  common  carriers, 
in  transporting  freight  over  the  roads,  and  let  the  lat- 
ter be  thrown  open  to  all,  and  the  abnormal  develop- 
ments of  the  modern  railway  power,  the  domination 
of  the  great  corporations  over  trade,  and  the  danger- 
ous tendency  of  the  corporate  kings  of  commerce  tow- 
ards monopoly  and  favoritism  will  be  radically  de- 
stroyed. 

While  such  a  reform  woidd  invade  privileges  which 
the  corporations  claim,  it  would  really  infringe  upon 
no  interests  which  are  legitimately  vested  in  them. 
The  railway  owner  regards  all  traffic  on  his  road  as 
the  propert}^  of  his  corporation,  h.  rival  who  com- 
petes for  the  traffic  is  stigmatized  as  "  robbing  the 
road  of  its  business."  While  the  business  of  carrying 
freight  over  a  railway  is  thus  held  to  l)e  its  property, 
the  proposal  to  abolish  its  exclusive  control  of  the 
business  will,  no  doubt,  be  denounced  as  an  attack 
upon  its  rights.  But  it  does  not  attack  or  affect  any- 
thing which  railway  capital  and  enterprise  have  cre- 
ated. It  neither  disturbs  any  tangible  property  be- 
longing to  the  company,  nor  impairs  its  a])ility  to  earn 
a  fair  return  on  its  invested  capital.  The  easement  of 
the  railway  corporation  in  its  right  of  way,  and  its 
ownership  of  tracks,  bridges,  and  tunnels  ai'e  property 
rights,  partly  paid  for  and  created  by  its  own  capital 
and  labor ;  Avliile  its  franchise  of  taking  tolls  is  neces- 
sary to  reward  its  enterprise.  But  it  does  not  follow, 
because  the  railway  coi'poration  has  received  from  the 


410  The  Railways  and  the  Hejpublic. 

sovereign  power  the  right  to  construct  and  control  a 
public  highway,  and  has  these  legitimate  proprietary 
interests,  that  it  must  be  invested,  in  addition,  with  a 
monopoly  of  transportation  over  the  highway.  That 
monopoly  which,  under  the  most  tolerant  view,  is  a 
material  impairment  of  the  character  of  the  public 
highway,  is  all  that  it  is  projDosed  to  take  from  the 
railwa}'.  The  right  of  the  railway  to  a  legitimate  re- 
turn on  its  investment  is  fully  secured  by  maintaining 
its  franchise  to  levy  adequate  tolls.  No  property  right 
can  be  said  to  exist  in  a  monopoly  upon  a  public  high- 
way, when  the  I'ight  of  the  company  which  has  con- 
structed it  to  full  I'eturn  upon  its  invested  capital  can 
be  perfectly  secured  without  the  monopoly. 

But  we  may  safely  go  further,  and  insist  that  the 
stability  and  legitimate  prosperity  of  railway  invest- 
ments would  be  materially  improved  by  establishing 
free  competition.  It  is  a  law  of  trade  that  interests 
which  depend  upon  monopoly  for  their  foundation  are 
subject  to  extreme  fluctuations,  and  rapid  alterations 
of  prosperity  and  depression.  In  commerce,  as  in  phys- 
ics, the  law^  of  nature  that  is  violated  will  work  out  its 
own  revenge.  The  artificial  establishment  of  high  rates 
which  check  traffic,  and  the  violent  recourse  to  extreme- 
ly low  ones  which  give  it  an  unnatural  stimulation, 
are  both  due  to  the  exclusive  privileges  of  the  railways, 
and  would  be  alike  removed  by  leaving  rates  to  the 
regulation  of  free  competition.  Competition  is  the  true 
regulator  of  the  operations  of  commerce,  as  the  gov- 
ernor is  of  the  steam-engine.  Railway  earnings  will  be 
steady  and  secure,  when  they  depend  on  uniform  and 
fixed  tolls,  made  sufiicient  to  maintain  the  roads  and 
to  yield  a  fair  return  on  their  capital.     To  separate 


The  Public  Highway.  411 

the  business  of  transportation,  Avitli  its  risks  and  fluctu- 
ations, from  the  business  of  building  and  owning  rail- 
ways, is  to  place  the  revenues  of  the  latter  upon  a  fixed 
and  certain  basis.  It  is  not  desirable  that  the  tolls 
should  be  subject  to  great  or  rapid  changes.  They  rep- 
resent the  fixed  and  permanent  elements  in  the  cost  of 
transportation.  The  cost  of  keeping  a  railway  in  re- 
pair, the  demand  of  bonded  debt  for  interest,  and  that 
of  capital  for  dividends,  are  constant,  and  should  be  met 
by  steady  and  unchanging  sources  of  revenue.  This 
end  would  be  largely  attained  by  the  reform  wow  ad- 
vocated. We  have  seen  that  free  competition  will  less- 
en the  fluctuations  of  charges  for  transportation  ;  but 
besides,  the  separation  of  the  carrying  business  from 
the  functions  of  the  railway  company  would  wholly  re- 
lieve the  latter  from  the  eflects  of  such  fluctuations, 
and  give  its  prosperity  the  secure  foundation  of  a  uni- 
form revenue  from  tolls.  On  such  a  basis  the  income 
of  the  railways  would  be  as  certain  as  the  revenue  of 
the  government  from  tarifts  and  excise;  and  their  se- 
curities, instead  of  being,  as  at  present,  subject  to  un- 
certainty and  surrounded  by  the  hazards  of  speculation, 
would  attain  much  of  the  stability  and  popularity  of 
government  bonds. 

The  improvement  in  the  position  of  legitimate  railway 
interests  would  be  further  promoted,  in  that  the  power 
of  railway  managers  to  manipulate  the  stock  market,  or 
to  use  the  railways  in  their  private  interests,  -would  be 
greatly  restricted.  Let  the  business  of  the  railways  be 
limited  to  the  collection  of  uniform  tolls,  and  the  wild 
fluctuations  of  the  stock  market,  produced  by  the  alter- 
nations of  railway  wars  and  railway  combinations,  w'ith 
the  prospect,  now  of  bankruptcy,  and  now  of  enormous 


412  The  Railways  and  the  Rejpublic. 

dividends,  would  cease  to  build  up  enormous  private 
fortunes  for  manao;ers,  while  disturbingr  and  disfrracinor 
the  financial  coiumunitv.  We  should  no  lonsrer  see 
speculating  managers  destroy  the  earnings  of  a  road,  by- 
diverting  traffic,  until  they  have  bought  up  its  shares, 
and  then  advance  their  price,  by  turning  business  back 
upon  it,  until  they  can  sell  the  shares  at  a  vast  profit. 
Under  this  reform,  directors  could  no  longer  fasten  par- 
asites upon  their  I'aihvays,  in  the  shape  of  fast  freight 
lines,  to  transfer  all  the  profits  of  the  freiglit  from  the 
pockets  of  the  stockholders  to  their  own.  For  these 
fast  freight  lines  bear  no  resemblance  to  the  common 
carriers  who  would  use  the  railways  undei-  this  reform. 
The  ri2;lit  to  use  the  roads  would  then  be  free  to  fren- 
eral  competition.  The  freight  lines  wljich  were  so  nu- 
merous eight  years  ago,  and  are  still  not  unknown, 
were  protected  against  competition  by  the  railways ; 
but  the  prosperity  of  carriers,  mider  free  competition, 
would  depend  solely  on  their  efficiency  and  enterprise. 
The  old  system  established  parasites  to  suck  the  finan- 
cial life-blood  of  each  railway,  for  the  benefit  of  a  few 
powerful  officials;  the  new  one  would  i-aise  up  numer- 
ous patrons,  all  paying  fair  rates  for  the  use  of  the  rail- 
^vay,  and  each  adding  to  its  revenues.  One  system  is 
an  imperiam  in  imperio^  a  monopoly  within  a  monop- 
oly ;  the  other  is  free  competition,  upholding  alike  the 
independence  of  trade  and  the  true  prosperity  of  the 
railways.  Railway  officials  would  doubtless  still  be 
tempted  secretly  to  reduce  tolls  to  can  iers  in  whose 
prosperity  they  might  be  personally  interested.  But 
the  new  system  would  make  such  a  discrimination 
much  more  liable  to  disclosure  and  defeat.  The  only 
customers  who  have  succeeded  in  forcing  the  railways 


The  PicUic  Highway.  413 

to  respect  their  right  to  unrestrained  and  equal  facili- 
ties are  the  express  companies.  Their  capital  has  en- 
abled them  to  carry  on  litigation  against  the  railways 
on  nearly  equal  terms ;  while  the  dependence  of  their 
prosperity  on  this  right  made  it  imperative  on  them  to 
assert  it  persistently  and  in  the  highest  courts.  Simi- 
lar organizations  engaged  in  general  freight  traffic  upon 
the  railways,  under  a  system  of  free  competition,  would 
defend  their  business  a2;ainst  fjivors  to  a  rival  with 
equal  success.  Moreover,  no  serious  discrimination  could 
be  made  in  tolls  between  different  carriers,  without  be- 
coming apparent  in  the  decreased  revenue  of  the  rail- 
way. A  comparison  of  the  tonnage  reports  with  the 
aggregate  income  of  the  railway  from  tolls  would  dis- 
close any  departni'e  from  uniform  and  avowed  rates. 
Any  such  discrepancy  would  at  once  show  that  the 
shareholders  had  been  robbed  in  their  revenues,  and 
that  the  shippers  had  been  wronged  by  undue  ffivors 
to  a  I'ival ;  and  both  classes  would  unite  to  correct  and 
punish  such  abuses. 

One  effect  of  such  a  change  would  be  to  diminish 
the  complexity  of  railway  reports,  and  make  them  in- 
telligible to  all.  The  annual  report  of  any  great  trunk 
line  is  now  a  sealed  book  to  the  average  shareholder. 
He  is  confronted  with  tables  of  construction  accounts, 
investment  accounts,  freight  and  passenger  movements, 
gross  earnings,  revenues  from  leased  lines,  payments 
of  rentals,  loss  or  profit  on  branch  lines,  surplus,  divi- 
dends, and  sinking  funds,  and  other  details  almost  to 
infinity;  his  bewildered  brain  fails  to  comprehend  how 
all  this  affects  the  value  of  his  property  ;  and  he  grate- 
fully accepts  the  fact  that  the  managers  have  allowed 
him  a  quarterly  dividend  of  1^  per  cent.     The  removal 


414  The  Railways  and  the  Hepublic. 

of  the  business  of  transportation  from  the  charge  of 
the  railways  would  relieve  these  reports  of  two  thirds 
of  their  complexity.  Their  expenditures  would  be  con- 
fined to  the  construction  account  (practically  closed  at 
their  completion),  the  repairs  and  betterments,  and  the 
payments  for  interest,  dividends,  and  sinking  funds; 
their  revenue  would  be  drawn  from  a  fixed  rate  per 
ton-mile.  All  this  could  be  put  in  a  form  plain  to  the 
humblest  investor.  He  could  know  from  the  figures 
whether  his  property  had  V>een  honestly  and  justly 
managed,  or  the  reverse  ;  and  he  could  act  intelligently 
in  supporting  the  management,  or  votiug  to  displace 
it.  It  is  a  strong  incentive  to  such  a  reform  that,  while 
tlie  railway  manager  may  now  be  the  master  of  the 
stockholders  and  the  tyrant  of  commerce,  he  would 
then  be  relegated  to  his  proper  place,  as  the  servant 
and  employee  of  the  owners  of  the  road. 

Again,  such  a  reform  would  offer  strong  inducements 
for  the  free  movement  of  local  freight,  and  would  vastly 
increase  the  volume  of  that  traffic,  both  by  the  greater 
freedom  of  commerce,  and  by  cheapening  rates  to  the 
freight  which  bears  the  heaviest  charges.  Figures  have 
already  been  referred  to,  showing  the  immense  develop- 
ment of  business  from  the  reduction  of  charges  during 
the  last  twenty  years,  mainly  on  through  shipments  and 
at  special  rates.  Let  local  business  enjoy  the  same  stimu- 
lating effect  of  moderate  charges,  and  its  growth  will 
show  similar  surprising  results.  The  productive  ca- 
pacities of  the  regions  which  the  railways  traverse  are 
never  developed,  until  they  offer  the  inducement  of 
cheap  rates.  The  development  must  need  be  imper- 
fect, while  their  products  must  bear  charges  greater  by 
50  or  even  150  per  cent.,  in  proportion  to  service,  than 


The  Public  Highway.  415 

the  products  of  Western  lands.  When  all  freight 
charges  are  brought,  by  universal  competition,  into 
equal  relation  with  cost,  the  development  of  local  traf- 
fic, in  every  district  capable  of  development,  will  make 
previous  records  of  expansion  seem  trivial.  Such  an  in- 
crease will  be  the  greatest  good  that  can  come  to  any 
railway.  The  development  of  its  own  section  is  the 
true  aim  of  any  enlightened  railway  policy,  and  the 
traffic  which,  under  universal  competition,  would  have 
no  inducement  to  open  competing  routes,  will  bring 
the  most  permanent  prosperity  to  the  corporation. 

Another  benefit,  which  this  refoi'm  promises  to  the 
railways,  is  that  it  will  take  away  all  incentives  to  un- 
necessary railway  construction.  The  building  of  rail- 
ways where  they  are  not  needed,  or,  more  precisely,  the 
construction  of  two  rival  tracks,  wliere  one  would  suf- 
fice for  the  business,  is  a  double  evil.  It  permanently 
sinks  a  large  capital,  which  might  be  advantageously 
employed  in  other  enterprises,  and  it  impairs  the  capi- 
tal, both  of  the  new  corporation  and  of  the  old  one,  by 
dividing  between  them  the  business  which  can  fairly 
remunerate  only  one.  There  may  be  a  few  cases  in 
which  the  business  will  fairly  sustain  two  parallel 
railways;  but,  if  so,  tlie  second  line  is  not  superfluous, 
and  the  case  does  not  belong  to  the  class  now  con- 
sidered. The  proposal,  heretofore  referred  to,  that  new 
railway  enterprises  be  restricted  by  law,  recognizes  an 
undoubted  evil,  but  undertakes  to  apply  to  it  an  un- 
justifiable remedy.  Enterprise  must  be  left  free  to  go 
where  commerce  and  industry  may  call  for  it;  and  the 
capital  it  employs  must  take  the  risk  of  its  possible 
mistakes.  It  is  no  duty  of  legislation  to  im])ose  arbi- 
traiy  checks  on  any  class  of  entei'prises,  whether  rail- 


416  The  Railways  and  the  Republic. 

ways,  rolling-mills,  or  wholesale  stores;  but  it  is  its 
proper  function  to  promote  conditions  under  wLicli 
their  direction  shall  be  natural.  It  cannot,  consistently 
with  the  freedom  of  commerce,  forbid  railway  construc- 
tion anywhere ;  but  it  can  and  should  remove  unnatural 
conditions,  wliich  make  it  necessary  to  build  new  roads, 
in  order  to  obtain  the  facilities  which  existing  roads 
ought  to  afford ;  and  which  stimulate  the  building  of 
unnecessary  roads  to  share  an  artificial  and  temporary 
prosperity.  To  forbid  the  investment  of  new  capital 
would  be  a  legislative  outrage ;  to  remove  the  stimulus 
upon  building  unnecessary  roads,  and  to  establish  con- 
ditions which  will  make  the  growth  of  new  enterprises 
natural  and  leiiitimate,  is  the  hio-hest  and  w^isest  leo^is- 
lation.  The  difference  is  exactly  that  between  regulat- 
ing trade  by  legislative  monopolies,  and  protecting  it 
in  the  unhampered  working  of  its  own  la^vs. 

The  conditions  which  now  force  the  building  of 
superfluous  railways  are  mainly  these:  First,  when 
communities  or  sections  suffer  under  excessive  or  dis- 
criminating rates,  imposed  by  the  monopoly  of  a  single 
railway  or  combination,  a  new  road  is  their  only  relief; 
second,  the  artificial  prosperity  of  existing  railways,  ob- 
tained by  monopoly  or  by  pooling  combinations,  often 
tempts  capital  to  build  an  unnecessary  new  line,  in  the 
hope  of  sharing  it.  Superfluous  railway  construction 
is  sometimes  the  last  resort  of  commercial  interests,  suf 
fering  under  the  exactions  of  a  railway  monopoly,  and 
sometimes  the  result  of  the  desire  of  speculators  with 
capital  for  a  share  in  artificial  i"ailway  pr6sperity.  The 
two  inducements  have  often  acted  together  in  produc- 
ing new  railways,  parallel  to  old  ones  which  are  compe- 
tent to  carry  all  the  business.    Both  alike  result  from  the 


The  Public  Highway.  417 

monopoly  wliicli  tlie  corporations  claim  in  transporta- 
tion over  their  tracks.  The  first  inducement  is  clearly 
illustrated  by  the  example  of  the  railways  carrying 
freifrht  from  Pittsburo;h  to  Lake  Erie  and  the  West. 
For  forty  miles  three  railways  run  side  by  side,  through 
the  Beaver  and  Mahoning  valleys,  and  for  fifteen  miles 
of  that  distance  a  fourth  weak  and  unimportant  line 
is  added.  At  no  point  in  the  forty  miles  are  these 
tracks  a  mile  apart.  For  nearly  as  great  a  distance, 
the  three  princij)al  lines  run  to  Pittsburgh,  in  a  strip 
of  country  from  five  to  fifteen  miles  in  width,  and  for 
sixty  miles  farther,  to  the  southeast,  connecting  railways, 
practically  parallel,  share  the  coal  and  coke  trafiic  of 
southwestern  Pennsylvania.  Thus,  for  one  hundred 
and  forty  miles,  three  railways  run  side  by  side,  shar- 
ing the  same  traffic,  offering  virtually  the  same  service, 
and  in  times  of  depression  destroying  each  other's 
profits.  The  construction  of  two  of  these  lines  was  the 
only  escape  from  exactions  of  the  monopoly  of  trans- 
portation in  these  regions  twelve  years  ago.  But  they 
represent  a  vast  waste  of  capital  and  labor.  The  traffic 
of  these  three  single-track  railways  could  be  carried 
more  expeditiously  and  economically  by  one  double- 
tracked  railway.  Had  a  system  of  free  competition, 
such  as  is  proposed  in  this  chapter,  been  in  existence 
twelve  years  ago,  commerce  would  have  been  free  from 
the  discriminations  and  exactions  which  compelled  the 
building  of  the  superfluous  railways.  The  growth  of 
traffic  under  competition  would  have  enabled  the  first 
railway  to  build  a  double  track,  while  its  monopoly 
has  forced  into  existence,  at  far  greater  expense,  paral- 
lel lines  to  share  its  business  and  depreciate  its  value. 
All  the  interests  concerned  in  the  construction   and 

27 


4:18  The  Hallways  and  the  Hepublic. 

operation  of  these  three  parallel  roads  would  have 
reaped  far  greater  benefits,  if,  from  the  first,  there  had 
been  but  one  road  ojien  to  the  free  competition  of  car- 
riers. The  method  of  securing  competition  by  build- 
ing parallel  lines,  in  comparison  with  that  which  legis- 
lation should  provide  for  the  public  highways,  involves, 
as  in  this  case,  a  vast  amount  of  wasted  labor  and 
capital.  The  objects  might  be  much  more  efitectually 
reached  at  a  fraction  of  the  cost. 

Not  less  striking  instances  of  parallel  and  unneces- 
sary railways  are  the  West  Shore  and  "Nickel-Plate" 
enterprises.  In  these  cases,  local  points  on  the  Vander- 
bilt  lines  secured  the  benefit  of  competition  by  the  new 
lines,  while  these  maintained  an  inde2:>endent  existence; 
but  the  chief  cause  which  attracted  capital  to  their 
construction  was  the  artificial  prosperity  of  the  trunk 
lines,  produced  by  the  temporary  success  of  the  pools. 
The  extraordinary  projects  carried  out,  first  by  the 
Nickel-Plate  road,  and  next  by  the  West  Shore,  expose 
the  necessary  tendencies  of  the  pooling  policj^  Each 
of  these  projects  was  an  attempt  to  share  the  factitious 
profits  which  the  trunk-line  pool  had  arbitrarily  cre- 
ated. Both  took  advantage  of  the  temporary  stimulus 
it  gave  railway  investments,  to  market  vast  amounts 
of  fictitious  securities ;  and  while  the  projectors  of  one 
made  a  brilliant  success  in  selling  to  the  chief  share- 
holders of  the  opposition,  both  companies  became 
bankrupt  and  inflicted  heavy  losses  upon  investors. 
Together  they  represent  a  loss  of  more  than  two  hun- 
dred millions  of  dollars,  sunk  in  wholly  unnecessary 
works.  They  are  alike  a  loss  to  the  country  and  a 
burden  to  the  older  companies  which  have  bought  ofl.* 
their  competition  at  high  prices.    This  is  the  "  competi- 


The  PuUic  Highvxiy.  419 

tion  of  capital,"  so  liigbly  extolled  by  Messrs.  Atkinson 
and  Lansing,  as  it  really  operates.  Similar  instances 
might  be  multiplied.  All  this  is  the  i-esiilt  of  the  vi- 
cious claim  of  the  railways  to  a  monopoly  in  transporta- 
tion. Their  oppressive  exactions,  and  the  unhealthy 
prosperity  temporarily  created  by  their  combinations, 
are  punished  by  the  outraged  laws  of  trade,  in  the  con- 
struction of  rival  lines,  which  divide  the  traffic,  which 
sink  capital  in  unnecessary  tracks,  and  which  destroy 
much  of  the  value  of  the  earlier  roads.  Such  a  condi- 
tion of  affairs  calls  for  correction.  The  trade  of  all 
sections  should  be  protected  from  excessive  and  unjust 
burdens ;  but  the  relief  should  not  be  souglit  in  a  wan- 
ton waste  of  property.  Capital  should  be  left  free  to 
embark  in  railways  as  in  other  enterprises;  but  the 
conditions  produced  by  legislation  should  not  offer  a 
premium  on  the  building  of  wholly  superfluous  rail- 
ways. It  is  an  injustice  and  wrong  that  labor  and 
capital  should  be  sunk  in  the  construction  of  two  or 
three  railways,  where  all  the  service  they  render  could 
be  had  from  one  under  proper  conditions.  And  the 
irony  of  the  situation  culminates  in  the  obvious  fiict, 
that  the  interest  which  suffers  the  greatest  loss,  in  the 
depreciation  of  its  investments  by  the  building  of  com- 
peting roads,  might  have  secured  vast  advantages  from 
free  competition  on  the  original  lines. 

The  natural  remedy  for  these  evils  is,  to  place  the 
business  of  transportation  over  tlie  railways  on  the 
same  basis  of  free  competition  as  that  over  canals  and 
turnpikes.  This  measure  will  entirely  remove  one 
great  cause  of  unnecessary  railway  construction.  No 
one  ever  heard  of  the  towns  along  the  line  of  a  canal 
projecting  a  parallel  canal,  to  secure  relief  from  exces- 


420  The  Railways  and  the  Repvhlic. 

sive  charges.  Free  competition  was  established,  so  that 
a  dozen  canals,  side  by  side,  would  have  made  it  no 
more  complete.  It  is  only  where  there  is  a  monopoly 
in  transportation  over  a  highway  that  communities  are 
forced  to  seek  relief  from  oppression  and  favoritism  by 
sinking  capital  in  rival  routes.  The  relief  afforded  by 
opening  transportation  to  all  carriers,  on  equal  terms, 
would  be  far  more  thorough  and  ftir  less  expensive. 
Fifty  thousand  dollars  would  enable  any  town,  that 
does  not  think  itself  fairly  treated,  to  place  engines  and 
cars  for  its  own  use  on  the  railway,  where  millions  would 
be  required  to  construct  a  new  road.  Each  communi- 
ty could  be  sure  of  sending  its  freight  at  will  by  any 
route,  to  any  destination,  upon  equal  terms  with  any 
other ;  while  now,  if  it  builds  a  new  road,  that  road 
may  still  be  absorbed  by  the  greater  corporations,  and 
for  transportation  beyond  its  immediate  termini  it  must 
depend  on  connecting  lines.  When  it  is  within  the 
power  of  such  communities  to  obtain  better  transpor- 
tation fj\cilities  by  I'unniug  new  trains  upon  existing 
roads,  the  railways,  too,  will  be  benefited.  Every  such 
step  adds  to  their  traffic,  increases  their  tolls,  and  justi- 
fies the  further  improvement  of  the  highway;  while 
the  building  of  parallel  lines  divides  their  traffic,  and 
permanently  diminishes  their  value.  For  both  the 
railways  and  the  public,  the  remedy  of  free  competi- 
tion offers  unqualified  benefits,  instead  of  the  vast  waste 
and  loss  incurred  by  the  present  practice  of  construct- 
ing parallel  and  unnecessary  roads. 

In  another  respect,  the  remedy  would  hardly  be  so 
complete  or  radical.  Men  -would  still  be  likely,  in 
times  of  speculation,  to  rush  into  reckless  schemes  of 
railway  expansion ;  and  many  would  always  be  ready  to 


The  Public  Highway.  421 

improve  an  opportunity  for  floating  fictitious  stocks,  and 
for  building  roads  under  contracts  with  themselves  at 
the  expense  of  the  bondholders.  Giving  the  public  the 
right  to  carry  freight  over  the  railways  will  not  cure 
the  cupidity  and  recklessness  of  financial  adventurers; 
but  it  will  take  away  the  great  prizes  now  offered  for 
such  anomalies  as  the  two  parallel  routes  already  men- 
tioned. It  will  do  this  in  two  ways:  First,  by  estab- 
lishing free  competition,  it  will  prevent  the  railways 
from  using  their  monopoly  of  transportation  to  create 
an  abnormal  and  transient  condition  of  railroad  pros- 
perity, such  as  calls  these  parallel  lines  into  existence; 
and  second,  when  the  activity  of  transportation  makes 
the  carrying  business  extremely  profitable,  it  will  attract 
new  capital  to  share  the  profits,  without  creating  new 
tracks,  as  a  permanent  burden  to  commerce  and  a  last- 
ing menace  to  the  existing  lines.  When  pooling  is 
made  impossible  by  the  unlimited  number  of  competi- 
tors in  transportation,  the  factitious  and  fleeting  pros- 
perity caused  by  pooling,  which  called  the  West  Shore 
and  Nickel-Plate  roads  into  being,  will  also  be  impos- 
sible. 

The  parallel  routes  that  have;  been  built  under  the 
existing  conditions  are  fiicts  which  commerce  must  ac- 
cept. But,  like  other  abuses,  springing  from  the  rei^-n 
of  exclusive  privileges  on  the  railways,  they  furnish  a 
warning  and  an  indication  of  what  is  needed  for  the 
future.  Together  with  the  creation  of  monopolies  over 
great  interests,  the  crushing  out  of  independent  con- 
cerns by  preferential  rates,  and  the  combination  of  the 
railway  corporations,  they  point  out  the  course  which 
legislation  must  take  for  the  future.  What  has  been 
done  may  be  regarded  as  a  matter  of  the  past ;  but  if 


4:'2'2  Th£  Bailways  and  the  Rejpiiblic. 

the  oppression  of  independent  trade  and  the  erection 
of  monopolies,  on  the  one  hand,  and  the  depreciation 
of  legitimate  railway  interests  by  mad  rivalry  and  reck- 
less construction  of  parallel  routes,  on  the  other,  are 
public  evils,  it  is  the  duty  of  legislation  to  prevent 
their  repetition  in  the  future.  That  every  one  of  these 
evils  finds  its  support  and  cause  ia  the  exclusive  con- 
trol, by  each  railway,  of  the  transportation  over  its 
tracks,  has  been  clearly  shown.  That  the  complete 
and  just  remedy  for  these  evils  is  to  remove  their  cause, 
by  throwing  the  right  of  transportation  over  the  rail- 
ways open  to  free  competition,  is  the  necessary  conclu- 
sion. 

It  has  been  frequently  urged  by  writers  on  the  rail- 
way side  of  the  question,  that  all  inequalities  and 
abuses  should  be  left  to  the  operation  of  the  natural 
laws  of  commerce,  and  to  the  influence  of  free  competi- 
tion. This  is  exactly  what  is  now  proposed  as  the  aim  of 
lesrislation.  The  true  function  of  lesrislation  is  to  remove 
the  restrictions  upon  free  commerce,  which  have  grown 
up  under  the  claim  of  each  railway  to  a  monopoly  of 
transportation  over  its  own  line,  and  to  place  transpor- 
tation upon  the  broad  and  natural  basis  of  competition, 
by  making  the  right  to  transport  freight  over  the  rail- 
ways as  universal  as  it  is  over  canals,  turnpikes,  and 
navigable  rivers.  This  is  wholly  within  the  power  of 
government.  The  restrictions  upon  competition,  im- 
posed by  the  exclusive  privileges  of  the  railways,  are 
due  to  the  laws,  or  the  perversions  of  law,  by  which 
those  privileges  have  been  seized.  Legislation  must  turn 
from  the  support  of  exclusive  rights  and  partial  monop- 
olies, and  must  protect  the  independence  of  trade  and 
the  freedom  of  every  man  to  engage  in  transportation 


The  Public  Highway.  423 

on  the  public  liighways.  Such  a  policy  will  promote 
the  widest  freedom  and  most  unrestricted  operation  of 
trade  and  industry,  and  the  most  natural  and  stable 
prosperity  of  tlie  railways. 

The  way  to  legislation  of  this  sort  is  made  easy  by 
the  fact  that,  if  adopted  in  one  state,  or  made  applica- 
ble only  to  inter-state  commerce,  it  will  not  hamper  the 
railways  subject  to  it  in  competition  with  others.  The 
objection  to  restrictive  regulation,  by  commissions  or 
by  such  provisions  as  those  of  the  Reagan  bill,  that,  un- 
less adopted  by  all  legislatures,  its  effects  will  be  un- 
even and  inequitable,  has  been  sufficiently  considered 
in  the  preceding  chapter;  and  it  is  only  necessary  to 
say  here  that  it  has  no  force  against  this  proposal. 
The  railway  thrown  open  to  general  competition,  by 
establishing  the  public  right  to  engage  in  transporta- 
tion over  its  track,  will  not  be  placed  at  a  disadvantage 
as  compared  with  its  rival  in  another  state.  It  will 
rather  have  a  decided  advantage  in  competition.  It 
will  have  a  steady  and  reliable  revenue,  from  uniform 
tolls  upon  its  entire  traffic.  It  will  expand  its  local 
traffic,  by  removing  the  inequalities  which  have  dwaifed 
and  checked  it.  It  will  attract  through  traffic,  by  in- 
viting carriers  from  every  section.  Give  the  "Western 
carriers  the  right  to  run  their  trains  to  New  York  over 
one  of  the  trunk  lines,  and  to  bring  them  back,  taking 
freight  on  their  own  terms,  and  they  \^ill  invariably 
choose  that  route,  in  preference  to  one  where  their 
cars  must  pass  beyond  their  control  and,  perhaps,  not 
be  returned  for  many  months,  where  their  rates  must 
be  subject  to  the  decisions  of  a  dozen  different  railway 
powers,  and  where  the  safety  or  promptness  of  the 
service,  ^hich  they  contract  to  perform,  is  at  the  mercy 


424  The  Railways  and  the  Republic. 

of  half  a  dozen  transportation  agencies  wholly  be3'ond 
their  control  or  knowledge.  It  seems  almost  self  evi- 
dent that  if  any  one  of  the  trunk  lines  should  offer 
carriers  such  great  attractions  as  the  free  use  of  its 
track  upon  the  payment  of  a  reasonable  toll,  the  rival 
lines  would  be  forced  to  adopt  the  same  course,  in  or- 
der to  maintain  their  through  traffic.  The  only  inter- 
ests that  would  be  hampered  would  be  those  of  monop- 
olies that  have  been  created  by  the  unjust  exercise  of 
the  railway  power,  and  those  of  officials  who  now  en- 
rich themselves  by  discriminations  in  rates  and  by  ma- 
nipulating the  price. 

The  measures  necessary  to  establish  the  public  rights 
in  the  railways  are  next  to  be  considered.  It  may  veiy 
plausibly  be  argued  that,  upon  the  principles  defined 
by  the  courts  as  fundamental,  in  the  early  days  of  the 
railway  system,  no  legislation  whatever  is  needed.  Un- 
der the  rulino;s  of  Justice  Baldwin  and  Chancellor  Wal- 
worth,  the  use  of  the  railways  as  public  highways  is  the 
right  of  every  citizen.  If  these  decisions  are  law,  any 
one  may  bring  his  trains  to  a  railway  and  demand  pas- 
sage. This  is  a  plain  deduction  from  the  decision  of 
the  Supreme  Court  of  the  United  States  in  the  Camden 
and  Amboy  case.  The  corporation  must  furnish  a  pub- 
lic highway,  in  foct  as  well  as  in  name.  The  legislature 
could  not  have  delegated  the  power  of  eminent  domain 
to  the  railway  on  au}^  other  conditions,  if  w^e  accept  the 
authority  of  Justice  Baldwin  in  this  case.  "  The  dec- 
laration in  the  charter  that  it  (the  railway)  is  for  pub- 
lic use  does  not  make  it  so,  if  the  effect  of  the  cliarter  is 
to  give  the  exclusive  iise  to  the  corporation^''  says  the  syl- 
labus ;  and  we  are  told,  in  the  body  of  the  decision,  that 
to  take  land  for  private  or  exclusive  use,  by  i-ight  of 


The  Public  Highway.  425 

eminent  domain,  "  is  opposed  to  every  constitutional 
principle  which  protects  the  right  of  property."  AVhat 
constitutes  this  right  of  public  use  is  no  less  clearly  set 
forth.  It  exists  "  if  the  public  have  the  right  of  pas- 
sage thereon,  by  paying  a  reasonable,  stipulated,  and 
uniform  toIV  (not  passenger  fares  or  freight  charges); 
and,  again,  "  the  true  criterion  is  .  .  .  whether  the  pub- 
lic can  participate  in  them  by  right  or  only  by  permis- 
sion." Under  this  principle,  laid  down  in  a  decision 
in  favor  of  the  railway,  there  is  no  doubt  of  the  right 
of  the  public  to  use  the  railway  tracks,  on  equal  terms 
and  conditions  with  the  railway  companies  themselves. 
There  is  certainly  no  doubt  as  to  such  right  in  the  case 
of  the  sevei'al  important  roads  operated  under  the  older 
charters,  in  which  the  grant  of  power  to  build  and 
work  the  railway,  and  to  take  toll,  is  not  accompanied 
by  an  exclusive  privilege  of  transportation.  When  we 
come  to  the  cases  where  the  leirislatures  have  made  a 
direct  grant  of  that  exclusive  privilege,  it  still  remains 
a  fiict  that  the  early  rulings  referred  to  decisively  deny 
the  constitutionality  of  such  grants.  They  rest  upon 
the  principle  that,  if  the  legislature  should  attempt  to 
endow  the  railway  corpoi'ations  witli  any  privileges  in- 
consistent with  tlie  preservation  of  the  road  as  a  public 
highway,  it  would  exceed  its  power,  and  could  not  be 
permitted  to  so  use  the  sovereign  right  of  eminent  do- 
main, in  a  wa}',  as  Chancellor  Walworth  said,  "  repug- 
nant to  the  constitution  of  the  United  States."  The 
unanimous  decision  of  the  courts  was  that  the  leo-islat- 
ure  had  not  so  used  its  power;  but  that  it  had  provid- 
ed for  the  establisliment  of  public  highways,  which 
should  be  open  to  the  use  of  the  public.  With  regard 
to  the  charters  then  under  consideration,  the  decision 


426  The  Railways  and  the  Rejpublic. 

was  riglit ;  for  they  required  that  the  use  of  the  tracks 
for  transportation  should  be  open  to  all  carriers,  on  what 
was  then  "  a  stipulated,  reasonable,  and  uniform  toll." 
The  Camden  and  Amboy  decision  unmistakably  assert- 
ed that  the  legislature  cannot,  directly  or  indirectl}', 
grant  any  monopoly  over  its  highways.  The  mere  sus- 
picion that  the  right  of  charging  a  high  toll  might  give 
the  corporation  such  a  monopoly,  was  held  to  cast  a 
doubt  on  the  validity  of  the  charter,  and  it  was  only 
passed  over  because  the  doubt  was  not  strong  enough, 
in  the  particular  case,  to  warrant  the  declaration  that 
the  charter  was  unconstitutional.  But  if  the  Supreme 
Court  then  regarded  the  right  of  taking  a  high  toll  as 
containing  "  strong  features  of  a  monopoly,"  with  what 
crushing  promptness  would  it  have  overruled  the  direct 
grant  of  exclusive  privileges  in  transportation  over  the 
public  highway,  as  beyond  the  power  of  any  legislat- 
ure, and  wholly  ''opposed  to  every  constitutional  prin- 
ciple which  protects  the  right  of  private  property." 

If  these  principles,  defined  by  the  most  eminent 
courts  at  the  beginning  of  the  railway  era,  and  by  vir- 
tue of  which  the  railways  gained  their  existence,  are 
final,  no  legislation  is  needed  to  establish  the  public 
right  of  transportation  over  the  railways.  Under  them, 
all  that  any  man  has  to  do,  when  he  wishes  to  trans 
port  freight  over  a  railway,  is  to  demand  that  right 
If  it  is  denied,  he  can  assert  it  in  the  courts.  In  op 
posing  his  action,  the  railways  would  be  confronted  by 
one  of  two  unpleasant  alternatives.  Either  their  char- 
ters must  reserve  this  public  right,  which  has  been  long 
denied  in  railway  practice,  or  it  must  be  claimed  that 
they  contain  such  a  grant  of  monopoly  as  exceeds  legis- 
lative power,  and  vitiates  their  constitutionality.   Under 


The  Public  Highway.  427 

the  law,  as  laid  down  by  the  courts  of  half  a  century 
ago,  the  railways  must  either  concede  the  public  right 
of  transportation  over  their  tracks,  or  must  forfeit  their 
corporate  existence.  Under  this  view,  all  that  is  need- 
ed for  the  establishment  of  free  competition  is  the  as- 
sertion of  the  public  right  and  its  protection  by  the 
courts;  and  the  railways  would  promptly  choose  be- 
tween surrendering  their  usurped  monopoly  of  trans- 
portation, and  subjecting  themselves  to  tlie  risk  of  hav- 
ing their  charters  declared  unconstitutional  and  null. 
It  is  possible  that  legislation  might  assist  in  the  asser- 
tion of  this  right,  by  declaratory  measures,  or  by  bring- 
ing the  law  officers  of  the  state  to  its  support.  But 
the  essential  fact  is  that,  if  the  common-law  principles 
applied  to  railway  charters  by  the  most  eminent  judges 
of  two  generations  ago,  and  which  furnish  the  very 
foundation  of  the  railway  system,  are  still  valid,  the 
legal  right  of  every  man  to  the  free  use  of  the  public 
highway  exists  to-day,  just  as  fully  in  the  case  of  the 
railways  as  in  that  of  the  turnpikes  or  the  canals,  and 
only  requires  a  bold  and  vigorous  assertion  to  estab- 
lish its  reformatory  and  restraining  influence  through- 
out the  railway  system. 

Will  the  courts  uphold  the  principle  in  question? 
It  must  be  acknowledged  that  its  strength  has  been 
impaired  by  later  judicial  utterances.  The  Supreme 
Court  of  the  United  States  in  1874  differed  from  the 
Supreme  Court  of  the  United  States  in  1842,  on  the 
question  whether  tlie  grant  to  a  railway  corporation  of 
a  monopoly  in  transportation  over  its  o^vn  track  is  con- 
sistent with  the  character  of  a  public  highway.  The 
later  ruling,  as  clearly  as  earlier  ones,  requires  that  the 
railway  shall  be  a  public  highway,  and  denies  that  a 


428  The  Railways  and  the  Rejpvhlic. 

legislature  can  exercise  the  rio-ht  of  emiueut  domain  in 
behalf  of  a  railway,  unless  it  is  to  be  a  public  highway. 
But  when  the  question  arises,  Is  it  essential  to  the  nature 
of  a  public  highway  that  it  be  open  for  transportation 
to  all  persons  ?  Justice  Strong  says :  "  It  bears  only 
upon  the  mode  of  use,  of  which  the  legislature  is  the 
exclusive  judge."  Almost  the  same  phraseology  was 
employed  in  the  Circuit  Court  of  the  United  States  by 
Judge  Emmons,  who  said :  "  We  are  utterly  unable  to 
see  anything  more  than  a  mere  mode  of  use,  of  which 
the  law-making  power  is  beyond  doubt  the  sole  judge." 
But  if  the  legislature  is  the  exclusive  judge  of  the  ne- 
cessity of  this  mode  of  use,  the  whole  subject  ap2:)ears 
to  be  open  to  reform  by  legislative  enactment.  The 
legislature  being  the  sole  judge,  it  may  regulate  the 
mode  of  use  of  the  public  highway,  with  a  view  to  the 
public  interests  as  well  as  the  permanent  prosperity 
of  the  roads.  Experience  having  shown  that  the  mode 
of  use  of  these  highways,  practised  by  the  companies, 
and  sanctioned  in  later  years  by  legislation,  leads  to 
pooling  combinations  which  defy  the  law,  to  discrimi- 
nating and  preferential  rates  which  outrage  justice,  and 
to  reckless  and  wasteful  warfare  between  parallel  lines, 
it  is  the  duty  of  the  legislature  to  re-establish  the 
"  mode  of  use "  which  opens  the  roads  to  all  carriers 
and  renders  such  abuses  impossible. 

It  will  doubtless  be  claimed  that  the  exclusive  privi- 
lege of  transportation  over  its  road  is  a  vested  right 
of  the  railway  corporation,  which  the  legislatures  can- 
not amend  or  take  away.  But  can  a  corporation  ob- 
tain a  vested  right  in  a  "method  of  use"  of  a  public 
highwa}',  and  especially  in  a  monopoly  of  its  use?  It 
is  settled  that  the  power  of  the  legislature  to  regulate 


The  Pullic  Highway.  429 

the  railways  is  general,  unless  limited  by  express  con- 
tract with  the  state.  Such  a  contract,  according  to 
the  later  decisions,  must  be  direct  and  unmistakable. 
Nothing  is  to  be  implied  against  the  state.  The  grant 
to  a  corporation  of  the  exclusive  privilege  of  running 
cars  over  its  tracks  only  amounts  to  permitting  that 
mode  of  use,  and  constitutes  no  contract  that  the  legis- 
lature will  never  authorize  another  mode  of  use,  which 
may  prove  better  for  the  public  and  for  the  railway 
itself  Nothing  short  of  a  specific  agreement  in  the 
charter,  that  no  future  legislature  shall  alter  the  mode 
of  use  of  the  railway,  would  thus  bind  the  state;  and 
even  if  such  an  a2;reement  were  inserted  in  a  charter,  it 
would  still  be  a  grave  question  whether  a  legislature 
can  bind  its  successors  not  to  exercise  a  constitutional 
power.  In  cases  involving  the  regulation  of  rates,  the 
courts  have  frequently  denied  that  the  legislature  can 
do  so.  The  exclusive  privilege  of  transportation  grant- 
ed by  a  charter  stands  on  no  better  legal  basis  than  the 
I'ight  to  charge  certain  tolls  or  freight  rates  granted  by 
the  same  charter.  Yet,  in  many  cases,  the  power  of  sub- 
sequent legislatures  to  change  and  reduce  the  charges 
has  been  affirmed.  It  is  wholly  "  a  method  of  use  "  sub- 
ject to  legislative  regulation.  To  change  it,  so  as  to 
secure  free  competition,  without  impairing  the  franchise 
of  the  corporation,  or  destroying  its  power  to  obtain  fair 
remuneration  for  its  service,  can  infringe  on  no  vested 
right,  nor  violate  any  legislative  contract.  The  reason- 
ing which  sustains  the  legislative  power  to  regulate  rates 
and  to  prohibit  discriminations,  applies  with  equal  force 
to  the  power  to  regulate  the  mode  of  using  the  railways, 
and  of  which,  in  tlie  words  of  the  Supreme  Court  of  the 
United  States,  '■'  tlie  legislature  is  the  exclusive  judge." 


430  The  Bailways  and  the  Repyhlic. 

But  it  is  unnecessary  to  press  this  argument,  for  the 
final  success  of  the  reform  does  not  depend  upon  the 
power  of  the  legislature  to  regulate  the  method  of  use 
which  the  existing  railway  corporations  may  practise. 
Even  if  we  assume  that  what  the  courts  now  declare 
to  be  a  "  mode  of  use,"  and  wliat  the  earlier  courts  de- 
clared to  be  an  unconstitutional  monopoly,  is  a  vested 
right  which  the  legislature  cannot  touch,  yet  the  estab- 
lishment of  the  public  right  to  use  the  railways  is  still 
within  the  powers  of  the  legislature.  Concede  to  the 
railway  corporations  every  legal  claim  they  make,  and 
the  power  which  created  them  still  remains  supreme. 
The  sovereignty  which  has  taken  the  property  of  pri- 
vate citizens,  to  establish  highways  for  the  public  bene- 
fit, can  in  turn  take  away  the  franchises  and  easements 
in  those  highways,  to  establish  other  highways  for  the 
public  benefit.  This  principle  is  established  beyond 
dispute  by  many  decisions,  and  is  admitted  in  the  text- 
books of  railway  law. 

The  poiDer  of  eminent  domain  may  he  used  to  appro- 
priate  the  rights  of  xoay  and  franchises  of  one  public 
highway^  for  the  estahlishment  of  another^  better  suited  to 
the  public  interest. 

This  exercise  of  sovereignty  has  been  essential  to  the 
building  up  of  the  railway  system,  and  has  hitherto 
been  upheld  for  the  benefit  of  the  railwa}'  companies. 
Again  and  again,  rights  of  ^vay  and  franchises,  already 
granted  to  coi'porations  by  charters  from  the  state,  have 
been  condemned  and  appropriated  for  the  building  of 
railways.  The  exercise  of  this  power,  for  the  establish- 
ment of  highways  more  useful  to  the  public  than  those 
taken,  was  undoubtedly  just  and  equitable.  The  in- 
terest of  corporations,  in  any  public  highway  wdiich 


The  Public  High-way.  431 

.they  control,  is  not  more  sacred  and  inviolable  than 
was  the  right  of  private  property,  in  the  land  originally 
taken  for  their  benefit.  All  are  sulxject  to  the  sover- 
eign power  of  the  state,  when  needed  for  public  use. 
Railway  property  is  no  more  sacred  than  either  pri- 
vate property,  or  the  easements  of  canals  and  plank 
roads;  and  as  the  railways  have  taken,  by  the  power 
of  eminent  domain,  both  private  property  and  the  rights 
of  way  of  other  highways,  their  property  and  franchises 
can  in  turn  be  taken,  to  establish  free  and  more  useful 
highways  for  commerce. 

This  principle  is  established  by  many  authorities,  to 
a  few  of  which  we  refer.  It  is  fully  set  forth  in  Chief- 
justice  Redfield's  book  on  "The  Law  of  Railways." * 

*  See  Redfield  on  Railways,  chap.  xi.  sec.  8,  page  255.  "  The  fiancliise 
of  a  turnpike  or  bridge  or  other  similar  corporation  may  be  taken  for  a 
free  road  or  for  a  railway,  which,  as  we  have  said,  is  a  public  highway." 
Having  remarked  that  this  can  be  done  where  the  franchise  is  situated 
partly  within  the  limits  of  diiferent  states,  but  that  one  state  can  only 
take  what  lies  within  its  limits,  and  that  compensation  must  be  provided 
for  in  exercising  the  power  of  eminent  domain,  Redfleld  adds  :  "  So  also 
may  tlie  franchise  of  one  railway  be  taken  for  the  construction  of  another 
railway."  In  a  recent  case  the  law  was  thus  stated  by  Shaw,  C.  /.  .■  "  Tlie 
courts  are  of  the  opinion  that  it  is  competent  for  the  legislature,  under 
tlie  right  of  eminent  domain,  to  grant  authority  to  a  railway  to  take  a 
liighway  longitudinally  in  the  construction  of  their  road.  The  power 
of  eminent  domain  is  a  prerogative  of  sovereigntj',  founded  upon  public 
exigency,  according  to  the  maxim,  solus  reipubliccB  lex  stiprema  est,  to 
wliich  all  minor  considerations  must  yield,  and  whicli  can  only  be  lim- 
ited by  such  exigency.  The  grant  of  land  for  one  public  use  must  yield 
to  another  more  urgent." 

As  to  the  inviolability  of  corporate  franchises  and  the  obligation  of 
contracts,  this  author  remarks  tliat,  "  where  exclusive  privileges  are  con- 
ferred upon  private  corporations  by  express  words  or  necessary  im2:)li- 
cation,  the  grant  is  irrevocable  and  inviolalile.  But  the  grant  of  any 
privilege  or  franchise  carries  no  implied  exclusion  of  similar  franchises 
and  privileges  being  conferred  upon  other  persons,  natural  or  corporate." 
Again,  in  the  tenth  paragraph  of  tliis  chapter  he  says:  "But  the  cxclu- 


432  The  Railways  and  the  Itejpublic. 

This  standard  work  on  the  legal  principles  which  un- 
derlie the  existence  of  the  railways  shows  this  princi- 
ple to  be  so  firmly  established  that,  to  use  the  words 

sive  character  of  a  corporate  grant  vvill  not  preclude  the  power  to  take 
a  franchise  upon  making  compensation,  under  the  right  of  eminent  do- 
main; the  stipulation  in  the  cliarter,  that  the  grant  shall  be  exclusive  of 
all  others,  being  sul^ject  to  the  same  law  as  other  projjerty  whether  in 
possession  or  action;  all  of  which  is  confessedly  subject  to  the  exercise 
of  eminent  domain  by  the  sovereign. 

"  It  has  sometimes  been  characterized  as  a  refinement  or  invasion  to 
identify  the  covenant  in  the  charter  of  a  private  corporation,  that  the 
grant  shall  be  exclusive  of  all  others,  with  the  charter  itself,  and  thus 
subject  it  to  the  law  of  eminent  domain.  But  it  seems  to  us  an  entirely 
sound  view,  in  all  cases  where  the  whole  franchise  of  the  corporation  is 
proposed  to  be  taken,  and  that  the  charge  of  refinement  is  ratlier  to  be 
laid  at  the  door  of  such  as  attempt  to  raise  a  distinction  between  the  ex- 
clusiveness  of  the  grant  and  the  grant  itself,  in  order  to  preserve  the  in- 
violabilitv  of  the  former,  which  is  the  lesser  and  subordinate  franchise, 
when  the  latter  and  paramount  franchise  of  a  corporation  is  confessedly 
subject  to  the  law  of  eminent  domain."  For  these  principles  the  author 
refers  to  Enfield  Toll  Bridge  Co.  rs.  Hartford  and  New  Haven  Railway, 
17  Conn.  40  and  454,  and  says:  "  Tliis  doctrine  has  been  so  repeatedly 
asserted  by  all  the  courts  of  the  country  that  it  seems  scarcely  requisite  to 
multiply  references.  And  the  right  to  take  the  franchise  of  another  cor- 
poration, by  parity  of  reason,  carries  the  right  to  impair  another  franchise 
to  any  extent  upon  making  indemnity.  Matter  of  Kerr,  24  Bart.  119." 
Judge  Redfield  also  cites  the  case  of  the  West  River  Bridge  Co.  xs.  Dix, 
to  which  we  shall  refer  more  fully  hereafter,  approving  the  view  of  Jus- 
tice Woodbury :  "  It  is  difficult  to  comprehend  why  the  exclusivcness  of 
the  grant  to  a  private  corporation  should,  upon  principle,  be  any  more 
inviolable  by  legislative  authority  than  any  other  part  of  the  corporate 
franchise.  It  is  only  as  property  that  it  is  valuable,  or  that  it  is  pro- 
tected at  all.  And  property  is,  in  cases  of  proper  necessity,  subject  to 
the  law  of  eminent  domain."  But  of  Judge  Woodbury's  suggestion  in 
this  case  that,  if  the  charter  contained  an  express  stipulation  against  the 
exercise  of  the  right  of  eminent  domain  against  the  corporation,  it  might 
be  binding,  Redfield  says,  "  This  is  certainly  not  the  prevailing  opinion." 
Adding  : 

"In  regard  to  the  right  of  eminent  domain,  it  seems  now  to  be  con- 
ceded that  no  legislature,  upon  any  consideration  or  pretence  whatever, 
can  deprive  a  future  legislature  of  its  exercise  in  tlie  absolute  annihila- 
tion of  corporate  franchise  upon  just  and  adequate  compensation.     In 


The  PuMic  Highway.  433 

of  the  author,  "  it  seems  scarcely  requisite  to  multiply 
references."  Not  only  does  Redfield  assert  the  power 
of  the  legislature  to  subject  the  property  of  railway 
corporations,  as  well  as  other  public  highways,  to  the 
right  of  eminent  domain,  but  he  maintains  that  it  is 
impossible  for  a  legislative  contract  to  be  made  by 
which  the  exercise  of  that  right  in  the  future  can  be 
prevented.  After  referring  to  the  one  decision  which 
intimates  the  possibility  of  binding  the  state  by  such 
a  stipulation,  he  says  that  "this  is  certainly  not  the 
prevailing  opinion,"  but  "  that  no  legislature,  upon  any 
consideration  or  pretence  whatever,  can  deprive  a  future 
legislature  of  its  exercise  (that  of  the  right  of  eminent 
domain)  in  the  absolute  annihilation  of  corporate  fran- 
chises upon  just  and  adequate  compensation."  Among 
the  leading  cases  on  this  principle  is  one*  in  which  the 

Backus  vs.  Lebanon  (11  K  H.  19),  Parker,  C  J.,  says:  "Had  tlie  char- 
ter contained  an  express  stipulation  that  the  property  of  the  corporation 
should  never  be  taken  in  the  exercise  of  the  power  of  eminent  domain, 
the  question  would  at  once  have  arisen,  whether  it  was  competent  for 
any  legislature  to  make  a  contract  of  that  character;  whether  any  legis- 
lature has  authority  by  contract  to  lay  restrictions  upon  this  power." 
(Reference  is  here  made  to  Piscataqua  Bridge  rs.  New  Hampshire  Bridge, 
7  N.  n.  35,  69.  See  also  Brewster  ts.  Hough,  10  X.  H.  138;  Northern 
Railway  xs.  Concord  and  Claremont  Railway,  7  Foster,  183.) 

Greenleaf  says  of  powers  of  government  of  this  class:  "They  are  in- 
trusted to  the  legislature  to  be  exercised,  not  to  be  bartered  away ;  and 
it  is  indispensable  that  each  legislature  should  assemble  with  the  same 
measure  of  sovereign  power  which  was  held  by  its  predecessors.  Any 
act  of  the  legislature  disabling  itself  from  the  future  exercise  of  powers 
intrusted  to  it  for  the  public  good  must  be  void,  being  in  effect  a  cov- 
enant to  desert  its  paramount  duty  to  the  whole  people.  It  is  therefore 
deemed  not  comi)etent  for  a  legislature  to  covenant  that  it  will  not,  un- 
der any  circumstances,  open  another  avenue  for  the  public  travel,  within 
certain  limits  or  a  certain  term  of  time ;  such  covenant  being  an  aliena- 
tion of  sovereign  power  and  a  violation  of  public  dutj'."  Greenleaf  on 
Cruse,  vol.  ii.,  note  to  pp.  G7,  G8. 

*  West  River  Bridge  Co.  rs.Dix  (6  Howard, 507, U.S.,  1848).  The  syllabus 
says:  28 


434  Tlie  Railways  and  the  Bepullic. 

appropriation  of  a  toll-bridge,  cLarterecl  by  the  Ver- 
mont legislature  for  a  hundred  years,  was  declared  by 
tlie  Supreme  Court  of  the  United  States  to  be  subject 

"A  bridge  held  by  an  incorporated  couipanj'  under  a  cliarter  from  a 
state  may  be  condemned  and  taken  as  a  2)art  of  a  public  highway  under 
the  laws  of  that  state. 

"  This  charter  was  a  contract  between  the  state  and  the  company,  but, 
like  all  private  rights,  it  is  subject  to  the  right  of  eminent  domain  in  the 
state. 

"  The  constitution  of  the  United  States  cannot  be  so  construed  as  to 
take  away  this  right  from  the  states. 

"Nor  does  the  exercise  of  the  right  of  eminent  domain  interfere  with 
the  inviolability  of  contracts.  All  property  is  held  by  tenure  from  the 
state,  and  all  contracts  are  made  subject  to  the  right  of  eminent  domain. 
The  contract  is  therefore  not  violated  by  the  exercise  of  the  right. 

"Property  held  by  an  incorporated  company  stands  upon  the  same 
footing  with  that  held  by  an  individual,  and  a  franchise  cannot  be  dis- 
tinguished from  other  property." 

In  1795  the  legislature  of  Vermont  granted  to  the  plaintiffs  in  error 
the  right  to  erect  a  bridge  over  the  West  Kivcr,  which  was  by  the  act 
made  exclusive  for  a  term  of  one  hundred  years.  In  1839  the  legislature 
passed  an  act  authorizing  the  courts  to  take,  for  the  use  of  new  high- 
waj's,  any  real  estate,  casement,  or  franchise  of  a  turnpike  or  other  corpo- 
ration, and  in  1843  the  courts  of  Vermont  ordered,  upon  petition,  the  tak- 
ing of  this  bridge  for  the  highway. 

The  decree  was  sustained  by  the  Supreme  Court  of  Vermont  and,  on 
appeal,  by  the  Supreme  Court  of  the  United  States.  The  exhaustive 
opinions  of  Justices  Daniels,  McLean,  and  Woodbury  affirmed  the  points 
given  in  tlie  syllabus.  Justice  Woodbury  says:  "I  exclude,  therefore, 
all  conclusions  as  to  my  opinions  here  being  otherwise  than  is  in  con- 
formity to  these  suggestions,  though  where,  as  in  the  present  case,  a  free 
public  use  in  a  highway  and  bridge  is  substituted  for  a  toll-bridge,  and 
on  a  long  or  great  and  increasing  line  of  public  travel,  and  thus  vests  a 
new  benefit  and  use  and  a  more  enlarged  one,  in  the  public,  and  not  in 
any  few  stockholders,  I  have  no  doubt  that  these  entitle  that  public,  for 
such  a  use,  to  condemn  private  property.  (Boston  Water-Powcr  Com- 
pany ts.  Boston  and  Worcester  Railroad,  23  Pick.  360.)  And  it  is  mani- 
fest that,  unless  such  a  course  can  be  pursued,  the  meaus  of  social  and  com- 
mercial intercourse  might  be  petrified  and  remain  for  ages,  like  the  fossil 
remains  in  sandstone,  unaltered;  and  the  government,  the  organ  of  a  pro- 
gressive community,  be  paralyzed  in  every  importantpublic  improvement." 

The  case  of  the  Central  Bridge  Company  rs.  Lowell  (4  Gray,  474, 1855), 


The  Public  Highway.  435 

to  the  right  of  eminent  domain.  The  charter  was  rec- 
ognized as  a  contract  with  the  state  ;  "  but  like  all  pri- 
vate rights,"  says  the  syllabus,  "  it  is  subject  to  the 
right  of  eminent  domain,"  and  "  the  constitution  of  the 
United  States  cannot  be  so  construed  as  to  take  away 
this  right  from  the  state."  The  claim  that  such  a  char- 
ter is  protected  by  the  inviolability  of  contracts  was 
considered.  "  All  contracts  are  made  subject  to  the 
right  of  eminent  domain."  And  finally.  Justice  AVood- 
bury's  opinion  seems  almost  prophetic,  as  preparing 
the  way  for  the  reform  now  needed  in  the  railway  sys- 
tem.    He  asserts  that  the  obtaining  of  "  a  new  benefit 

in  which  exclusive  privileges  for  a  bridge,  granted  for  seventy  years,  were 
taken  by  the  City  of  Lowell  for  a  street,  is  similar  in  principle  to  that  of  the 
West  River  Bridge  Company  ts.  Dix,  We  cite  it  for  the  sake  of  Justice 
Bigelow's  impressive  words  :  "  Nor  is  the  principle  thus  recognized  any 
violation  of  justice  or  sound  i)olicy,  nor  docs  it  in  any  degree  tend  to  im- 
pair the  obligation  or  infringe  upon  the  sanctity  of  contracts.  It  rests 
on  the  basis  that  the  public  convenience  and  necessity  are  of  jiaramount 
importance  and  obligation,  to  which,  when  duly  ascertained  and  declared 
by  the  sovereign  authority,  all  minor  considerations  and  private  rights 
and  interests  must  be  held,  in  a  certain  measure  and  to  a  certain  extent, 
subordinate.  By  the  grant  of  a  franchise  to  individuals  for  one  pur- 
pose, the  legislature  do  not  forever  debar  themselves  from  giving  to  oth- 
ers new  and  paramount  privileges,  wlien  required  by  public  exigencies, 
although  it  may  be  necessary,  in  the  exercise  of  such  riglits  and  privi- 
leges, to  take  and  ai)propriate  a  franchise  previously  grunted.  If  such 
were  the  rule,  great  public  improvements,  rendered  necessary  by  the  in- 
creasing wants  of  society,  in  the  development  of  civilization  and  the  prog- 
ress of  the  arts,  might  be  prevented  by  legislative  grants  whicli  were 
wise  and  expedient  in  their  time,  but  which  tlie  public  necessities  have 
outgrown  and  rendered  obsolete.  Tlie  only  true  rule  of  policy,  as  well 
as  of  law,  is  that  a  grant  for  one  public  purpose  must  yield  to  another 
more  urgent  and  important;  and  tliis  can  be  effected  witliout  any  in- 
fringement on  the  constitutional  rights  of  the  subject.  IC  in  sucli  cases 
suital)lc  and  adequate  provision  is  made  by  the  legislature  for  the  com- 
pensation of  those  wliose  property  or  franchise  is  injured  or  taken  away, 
there  is  no  violation  of  faith  or  private  right.  The  obligation  of  the  con- 
tract created  by  the  original  cliartcr  is  thereby  recognized. 


436  The  Railways  and  the  Repuhlic. 

and  use,  aud  a  more  enlarged  one,  in  the  public  and 
not  in  any  few  stockholders,"  is  a  proper  function  of 
the  state,  and  that  without  that  power  "  the  means  of 
social  gind  commercial  intercourse  might  be  petrified 
and  remain  for  ages  like  the  fossil  remains  in  sand- 
stone, unaltered,  and  the  government,  the  organ  of  a 
progressive  community,  be  paralyzed  in  every  impor- 
tant public  improvement." 

In  other  cases  the  same  principle  has  been  affirmed, 
both  for  the  benefit  of  railways  and  in  restriction  of 
their  privileges.  In  Indiana  the  Supreme  Court  held 
that  one  railway  could  appropriate  the  right  of  way 
of  another,  notwithstanding  a  provision  in  the  earlier 
charter  which,  more  directly  than  in  any  other  case, 
seemed  to  bind  the  state  not  to  inteifere  with  the 
I'ights  or  privileges  of  the  older  corporation.*  In  a 
Vermont  case,  the  appropriation  by  a  i-ailway  of  a  con- 

*  In  the  case  of  the  New  Castle  and  Richmond  Railroad  Company  vs. 
the  Peru  and  Indianapolis  Railroad  Company  (3  Ind.  464,  1852),  it  -was 
held  that  the  former  road  had  the  right  to  ai^propriate  the  track  of  the 
latter,  subject  to  its  riglit  of  way.  The  grant  by  the  charter  of  a  right 
by  which  it  became  seized  in  fee  simple  of  the  land  it  obtains,  does  not 
release  the  fee  from  sulijection  to  the  power  of  the  state,  but  "  vests  it 
subject  to  the  right  of  the  state  to  take  the  same  on  compensation  being 
made  for  the  public  use." 

A  clause  in  the  charter  provided  that  "  no  person,  body  politic  or  cor- 
porate, shall  in  any  way  interfere  with,  molest,  disturb,  or  injure  any  of 
the  rights  or  privileges  thereby  granted,  or  that  would  be  calculated  to 
detract  from  or  affect  the  profits  of  said  corporation."  It  was  held  that 
the  slate  did  not  thereby  relinquish  the  right  to  charter  any  other  com- 
pany which  would  compete  with  said  Peru  and  Indianapolis  Railroad 
Company,  nor  the  right  to  take  such  land  for  public  use.  In  this  case 
the  court  said  :  "  It  is  not  necessary  that  we  should  here  decide  whetlier 
the  state  can  deprive  herself,  by  contract, with  a  citizen,  of  any  part  of  her 
sovereignty,  her  right  of  eminent  domain.  It  is  sufficient  for  this  case  to 
eay  that  she  will  not  be  taken  to  have  done  it  without  a  very  clear  ex- 
pression to  that  effect." 


Tlte  Public  Highway.  437 

siderable  portion  of  the  rigbt  of  way  of  a  turnpike 
was  unequivocally  affirmed  by  the  Supreme  Court  of 
the  state.  "  It  now  appears  to  be  too  well  settled  to 
be  controverted,"  said  that  court,  in  1849,  "  that  there 
is  no  implied  contract,  in  the  charter  of  a  turnpike  or 
other  private  corporation,  that  their  property,  or  even 
their  franchise  itself,  shall  be  exempt  from  the  common 
liability  of  the  property  of  individuals  to  be  taken  for 
the  public  use ; "  and  that  the  property  of  a  turnpike 
may  be  taken  for  a  railway  as  well  as  the  property 
of  private  individuals  for  a  turnpike.*     In  Massachu- 

*  See  White  River  Turnpike  Company  rs.  Vermont  Central  R.  R.  Company 
(21  Vt.  590, 1849).  This  case  involved  the  right  of  the  railway  to  appro- 
priate the  right  of  way  of  the  turnpike  company,  not  only  for  crossings,  but 
for  a  considerable  distance.  On  tiie  right  of  the  legislature  to  grant  this 
jiower  the  court  said :  "  Upon  this  question  it  is  deemed  sufiicieut  to  say 
that  it  now  appears  to  be  too  well  settled  to  be  controverted  tliat  there 
is  no  implied  contract  by  the  state  in  a  charter  of  a  turnpike,  or  other 
private  corporation,  that  their  property,  or  even  their  francliise  itself,  shall 
be  exempt  from  the  common  liability  of  the  property  of  individuals  to  be 
taken  for  the  public  use ;  that  it  may  l)e  taken  on  proper  compensation 
being  made  ;  that  a  railroad  is  an  improved  highway,  and  tliat  property 
taken  for  its  use,  by  authority  of  the  legislature,  is  property  taken  for  the 
public  use,  as  much  as  if  taken  for  any  other  higiiway,  and  that  the  legis- 
lature may  delegate  its  powers  to  a  railroad  corporation  to  take  private 
projjerty  for  public  use  in  the  construction  of  the  railroad,  as  well  as  to  a 
turnpike  corporation  to  take  the  like  property  for  tlic  public  use  in  the 
construction  of  a  turnpike  road."  (Armington  vs.  Bennett,  15  Vt.  745; 
Enfield  Toll-Bridge  Company  vs.  Hartford  and  New  Haven  Railroad,  17 
Conn.  454 ;  and  the  West  River  and  Water-Power  cases,  elsewhere  quoted 
from,  are  cited  I)y  the  court. 

The  Enfield  Bridge  case  (in  184G)  was  an  aflirmation  of  the  right  of 
the  railway  to  condemn  the  exclusive  franchise  of  the  bridge.  •  The 
syllabus  says,  "Tlie  franchise  of  tlie  Enfield  Toll  Bridge,  aside  from 
any  special  legislation  in  regard  to  it,  is  subject  to  the  same  legislative 
control  for  public  use  as  any  other  species  of  property,"  and,  "  that  a  fran- 
chise issuing  out  of  land  was  an  incorporeal  hereditament,  which  miglit 
be  treated  as  real  estate  in  the  charter,  and  an  injury  done  to  it  would 
be  subject  of  assessment." 


438  The  Bailways  and  the  BepuUio. 

setts*  the  same  doctrine  was  affirmed  in  1839,  Finally, 
it  was  distinctly  declared,  in  1851,  by  the  Supreme 
Court  of  the  United  States.f  These  are  early  cases, 
since  of  late  the  power  of  the  legislature  to  appropri- 
ate other  highways  for  the  use  of  railways  has  been 
undisputed. 

The  principle  so  long  applied  to  build  up  the  rail- 
way system  is  equally  applicable  to  its  reformation. 
If  the  exclusive  right  of  transportation  over  their  tracks 
is  vested  in  the  railway  companies,  the  legislatures  may 


*  Boston  Water-Power  Company  xs.  Boston  and  Worcester  Railroad  (23 
Pick.  3G0).  Full  control  over  the  waters  of  an  arm  of  the  sea  was  granted 
to  plaintiffs,  for  the  purpose  of  furnishing  water-power.  The  building  of  a 
railroad  across  tlie  basin,  injuring  the  property,  Avas  held  to  be  within  the 
power  of  the  legislature  upon  compensation  for  injury.  Shaw,  Chief-jus- 
tice, also  held  that  the  grant  to  the  w-ater-power  corporation  "  did  not 
withdraw  it  from  a  liability  which  all  lands  in  the  commonwealth  are 
subject  to,  to  be  taken  for  public  use,  for  an  equivalent,  when,  in  the  ojiiu- 
ionof  the  legislature, the  public  exigency  requires  it;  and  that  the  efiect 
of  the  railroad  act  was  merely  to  appropriate  to  another  and  distinct  pub- 
lic use  a  i^ortion  of  the  land  over  which  the  franchise  of  the  water-power 
company  was  to  be  used.  If  the  whole  of  the  franchise  should  become 
necessary,  it  seems  that  the  right  of  eminent  domain  would  authorize  the 
legislature  to  take  it  on  payment  of  a  full  equivalent.  Such  exercise  of 
right  of  eminent  domain  does  not  impair  the  obligation  of  contracts." 

t  Richmond,  «S;c.,  Railway  ts.  Louisa  Railway  (13  Howard,  71).  The 
opinion  of  the  court,  by  Justice  Grier,  affirmed  the  right  of  the  legis- 
lature to  authorize  the  latter  road,  notwithstanding  an  agreement  to 
the  contrary  in  the  charter  of  the  former.  The  court  said:  "The 
counsel,  very  properly,  have  not  insisted,  in  their  argument  in  this  court, 
on  this  point  made  in  their  bill,  that  the  legislature  had  no  power  to  au- 
thorize the  construction  of  one  railroad  across  another.  The  grant  of  a 
francliise  is  of  no  higher  order,  and  confers  no  more  sacred  title,  than  a 
grant  of  land  to  an  individual;  and,  when  the  public  necessities  require 
it,  the  one  as  well  as  the  other  may  be  taken  for  public  purposes;  nor 
does  such  an  exercise  of  the  right  of  eminent  domain  interfere  witii  the 
inviolability  of  contracts."  The  principle  was  not  denied  in  Justice 
Curtis's  dissenting  opinion;  but  he  claimed  that  it  did  not  apply  to  this 
case. 


The  Pullic  Highway.  439 

still  charter  corporations  wliicli  will  give  the  public  "  a 
new  benefit  and  use  and  a  more  enlarged  one,"  to  quote 
Justice  Woodbury's  language,  by  opening  the  railways 
to  all  carriers,  ^vith  their  own  engines  and  cars ;  and 
may  appropriate,  for  such  improved  and  free  railways, 
the  rights  of  w^ay  and  franchises  of  the  existing  roads. 
In  Justice  Grier's  words,  "  the  grant  of  the  franchises 
of  the  railways  is  of  no  higher  order,  and  confers  no 
more  sacred  title,  than  the  grant  of  land  to  an  indi- 
vidual." The  power  that  appropriated  private  proper- 
ty, and  gave  it  to  the  railway  for  the  public  benefit, 
can,  when  it  is  made  apparent  that  the  public  benefit 
will  be  subserved  thereby,  take  it  from  the  present 
railway  corporation  and  give  it  to  another ;  stipulating 
for  its  free  use  by  the  public.  For  such  a  reform  as 
this, ''  the  only  true  rule  of  policy  as  well  as  of  law,"  in 
Chief-justice  Shaw's  words,  "is  that  a  grant  for  one 
public  purpose  must  yield  to  another  more  urgent  and 
important;  and  this  can  be  effected  without  any  in- 
fringement on  the  constitutional  rights  of  the  subject." 
In  all  this,  as  declared  by  the  Supreme  Court  of  the 
United  States,  and  the  courts  of  Massachusetts  and 
Vermont,  there  is  no  violation  of  contract.  It  is  tak- 
ing private  property  for  public  use,  just  as  the  right  of 
way  was  taken  for  the  railways,  but  for  public  use  in 
a  higher  and  more  perfect  form.  It  is  appropriating  a 
qiiasl  public  higlnvay,  on  which  transportation  is  a 
monopoly,  for  the  creation  of  a  true  public  highway, 
with  its  essential  features — equal  rights  and  free  com- 
petition. Such  a  reform,  witli  the  consequent  sup- 
pression of  the  methods  by  whicli  monopoly  in  the 
railways  now  oj^presses  trade,  is  the  greatest  attainable 
improvement  in  the  modern  system  of  public  highways, 


4:40  The  Railways  and  the  Bejoublic. 

and  one  of  the  worthiest  objects  for  Mbicli  tLe  legis- 
lative power  of  eminent  domain  could  be  exerted. 

The  means  by  Avliich  legislation  may  establish  fi-ee 
competition  in  railway  transportation  are  thus  made 
clear.  With  reirard  to  roads  whose  charters  m-ant  no 
exclusive  privilege  of  transportation,  and  but  simply 
authorize  them  to  take  tolls,  all  that  is  needed  is  a 
legislative  declaration  of  the  rights  of  the  public,  the 
enactment  of  regulations  to  secure  safety  and  conven- 
ience in  running  ti'ains,  and  possibly  instructions  to  the 
legal  officers  of  the  state  to  enforce  the  public  rights 
through  the  courts.  Similar  laws  might  be  passed 
even  for  the  railways  whose  charters  make  them  the 
sole  carriers  on  their  tracks.  It  would  be  worth  while 
to  test  the  question  whether,  under  our  constitutional 
government,  any  legislature  can  grant  a  monopoly  in  a 
public  highway  established  by  seizing  private  proper- 
ty. It  would  be  salutar}^  to  make  this  question  a 
political  issue,  and  so  to  direct  the  public  mind  to 
the  principles  on  which  public  rights  and  the  freedom 
of  trade  rest.  But,  however  such  an  effort  might  result, 
the  legislature  has  in  reserve  a  power  which  is  ample 
to  secure  the  end  in  view.  Let  a  general  act  grant  the 
right  of  eminent  domain  to  corporations,  whose  charters 
shall  open  their  lines  on  equal  terms  to  every  carrier, 
and  authorize  the  appropriation  by  them  of  the  rights 
of  way  and  franchises  of  any  railway  which  monopolizes 
its  track,  and  the  problem  will  be  solved.  Upon  the 
enactment  of  such  a  law,  existing  railways  would  make 
baste  to  divest  themselves  of  the  monopoly  they  now 
claim,  and  to  proffer  to  the  entire  public  unobstructed 
privileges  of  transportation. 

Of  course,  such  a  law  must  provide  methods  for  de- 


The  PiibliG  Highway.  441 

termin'mg  tLe  proper  value  of  the  property  and  fran- 
chises to  be  taken  under  it.  Full  compensation,  on  the 
basis  of  real  value,  is  an  es-seutial  incident  to  the  exer- 
cise of  the  power  of  eminent  domain.  ISo  inflated 
bonds  or  fictitious  stocks  could  be  imposed  on  the  cor- 
poration taking  the  property,  for  the  owner  is  entitled 
to  compensation  for  actual  value  only;  but,  on  the 
other  hand,  the  corporation  whose  property  is  taken 
must  have  a  real  equivalent,  detei'mined  by  legal  pro- 
cess, for  its  rights  and  franchises.  Legislation  would 
also  be  necessary  to  settle  many  incidental  questions 
relating  to  the  use  of  the  roads.  It  must  determine 
whether  regulations  fur  safety  and  promptness  in  mov- 
ing trains  should  be  established  by  each  corporation 
over  its  own  track,  or  by  general  law.  It  must  deter- 
mine whether  carriers  desiring  to  run  trains  shall  give 
bonds  for  the  safety  of  their  rolling-stock,  and  for  the 
conduct  of  their  employees,  or  whether  they  should 
merely  be  liable  for  daraao-es  resultinir  from  neglect  or 
disobedience.  The  question  whether  a  discrimination 
between  carriers,  on  the  part  of  a  railway  corporation, 
either  in  tolls  or  in  facilities,  should  be  punished  by 
forfeiture  of  the  charter  or  by  other  penalties,  should 
also  be  answered  by  this  legislation. 

Another  question  of  great  importance  is,  whether  a 
railway  corporation  shall  be  permitted  to  compete  as  a 
carrier,  or  whether  it  shall,  by  law,  be  confined  strictly 
to  the  function  of  building  and  maintaining  a  railway 
for  the  use  of  the  public.  We  have  hitherto  assumed 
that  the  company  miglit  be  permitted  to  run  its  own 
trains.  But  there  are  serious  objections  to  this,  and  it 
may  be  necessary  to  separate  the  functions  of  the  rail- 
ways wholly  from   those  of  the  carrier.     The  grav- 


442  The  Railways  and  the  Republic. 

est  abuses  of  the  railway  system  have  arisen  when  the 
railways,  or  their  officers,  engage  in  business  dependent 
on  them  for  transpoitation.  It  is  then  only  a  question 
of  time,  unless  the  moderation  of  the  railways  is  super- 
human, how  long  they  will  permit  the  existence  of 
rivals  who  are  wholly  at  their  mercy.  One  considera- 
tion or  another  may  prevent  a  railway  from  entirely 
crushing  out  the  shippers  who  compete  with  it  in  its 
subsidiary  business ;  but  the  existence  of  the  power  to 
do  so,  and  the  fiict  that  it  has  often  been  exercised  to 
the  full  extent,  are  reasons  enough  for  demanding  that 
the  boundary  be  definitely  and  clearly  drawn  between 
the  function  of  the  railway  and  that  of  the  transporter, 
and  that  the  law  limit  the  railway  corporation  strictly 
to  its  own  work.  It  may  still  be  doubted  whether 
that  work  should  be  only  to  build  and  maintain  the 
railway,  or  should  include  the  furnishing  of  motive 
power  for  all  carriers.  The  latter  view  will  seem  to 
many  to  indicate  the  proper  division  of  duties  be- 
tween the  railways  and  the  carriers.  It  finds  much 
support  in  the  early  history  of  railroads,  in  the  experi- 
ence of  the  public  works  of  Pennsylvania. 

The  canals  and  railways  built  by  that  state,  and 
operated  by  it  for  nearly  twenty  years,  are  well  known 
as  an  illustration  of  the  evils  of  political  management 
in  business  enterprises.  They  are  salient  examples  of 
the  demoralizing  effect  which  politics  and  public  works 
can  exert  on  each  other;  and  the  constant  strife  for 
their  patronage,  its  use  for  political  rewards,  and  the  ex- 
pensive administration  and  unsatisfactory  revenues  of 
the  roads  finally  led  the  state  to  part  with  them.  But 
they  have  another  lesson  for  us,  as  an  instance  in  which, 
for  many  years,  the  business  of  transporting  freight 


The  Public  Highway.  443 

over  an  improved  public  highway,  including  canals  and 
railways,  was  open  to  general  competition,  while  the 
state  corporation  owning  it  confined  itself  to  the  func- 
tions of  building  and  maintainiug  the  roads,  and  fur- 
nishing the  motive  power  on  the  railways.  These  rail- 
Avays  were  the  Allegheny  Portage  and  the  Philadelphia 
and  Columbia.  The  former  connected  two  sections  of 
the  state  canal  on  each  side  of  the  Allegheny  moun- 
tains, while  the  latter  connected  the  eastern  end  of  the 
canal  with  Philadelphia.  Over  the  canal,  of  course, 
every  one  was  free  to  run  canal  boats;  while  over  the 
railways  carriers  could  send  their  freight,  either  in  sec- 
tions of  the  canal  boats,  mounted  on  wheels,  or  in  or- 
dinary freight  cars,  to  be  hauled  by  motive  power  fur- 
nished by  the  state,  at  fixed  charges  per  ton  per  mile. 

As  compared  with  present  methods  of  railway  trans- 
portation, those  employed  on  this  route  were  rudiment- 
ary. In  its  earlier  operations,  before  the  locomotive 
was  perfected,  the  motive  power  was  furnished  by 
horses;  while  for  nearly  a  generation  the  inclined  planes 
of  the  Portage  road  were  worked  by  stationary  engines. 
But  these  early  methods  of  railroading  did  the  work 
of  one  of  the  great  trans-Allegheny  thoroughfares,  and 
demonsti'ated  the  practicability  of  a  railway  which  per- 
mits carriei's  to  run  their  own  cars,  while  it  furnishes 
the  motive  power.  The  ability  of  transporters  and  car- 
riers at  large  to  compete  on  this  route  caused  no  con- 
fusion and  no  practical  difficulty.  All  shippers  and 
carriers  enjoyed  impartially  the  same  rates  and  privi- 
leges. In  adequacy  and  economy  of  service,  this  route 
compared  favorably  with  others  in  that  era  of  railway 
development;  and,  although,  in  the  latter  part  of  its 
history,  a  competing  railroad  took  a^vay  the  passenger 


444  The  Bailways  and  the  Bepublic. 

traffic  of  the  canal,  by  connecting  with  the  Philadelphia 
and  Columbia  Kailroad  at  Lancaster,  the  freight  business 
still  sou2:ht  the  route  wliich  2:ranted  this  modified  free- 
dom  of  transportation.  While  the  political  influences 
which  surrounded  this  system  of  transportation  insured 
its  destruction,  the  privilege  of  free  transportation  by 
competing  carriers  was  of  undoubted  value.  When 
the  Pennsylvania  Railroad  finally  obtained  control  of 
the  state  roads,  and  imposed  charges  for  hauling  the 
cars  of  other  carriers  which  were  practically  prohibit- 
ory, thus  establishing  a  monopoly  in  transportation, 
there  was  a  general  protest  from  the  shipping  interests. 
The  history  of  the  Pennsylvania  public  works,  and 
the  common  practice  of  the  railways  in  transporting 
the  cars  of  other  railway  companies,  prove  that  a  sys- 
tem in  which  the  business  of  the  railways  shall  be  con- 
fined to  hauling  the  cars  of  common  carriers,  or  shippers, 
at  uniform  and  fixed  charges,  is  entirely  practicable. 
But  I  am  hardly  prepared  to  admit  that  this  would  be 
the  most  natural  division  of  the  functions  of  railway 
companies  from  those  of  common  carriers,  or  the  sim- 
plest and  most  effective  practical  reform.  The  natural 
division  is  between  the  duties  of  transportation,  which 
can  be  thrown  open  to  competition  on  the  one  hand, 
and  those  of  constructing  and  tnaintaiuing  the  railway 
on  the  other.  There  is  hardly  more  reason  for  exclud- 
ing the  general  public  from  the  right  to  own  and  run 
locomotives,  under  proper  restrictions,  tlian  for  exclud- 
ing them  from  owning  and  running  cars ;  and  in  this 
work,  also,  the  regulative  influence  of  competition  would 
be  the  best  safeguard  against  encroachments  by  the 
railway  company.  In  the  case  just  referred  to,  the  ex- 
clusive right  of  furnishing  the  motive  power  enabled 


The  Piiblic  Highway.  445 

the  railway  company  to  usurp  the  exclusive  right  of 
trausportation.  Had  both  fuuctious,  that  of  transport- 
ins:  freio^ht  in  cars  and  that  of  haulino-  them  after  thev 
were  loaded,  been  free  to  general  competition,  the  evils 
of  favoritism  and  monopoly  now  rife  in  the  railway  sys- 
tem of  Pennsylvania  would  have  been  impossible.  Nor 
is  it  at  all  clear  that  if  the  tolls  charsced  to  carriers  at 
large  were  limited  to  what  is  necessary  for  maintenance 
and  for  interest  on  the  investment,  there  would  be  any 
necessity  for  excluding  the  railway  companies  from  the 
general  business  of  trausportation.  The  Pennsylvania 
Kailroad  was  able  to  exclude  all  other  cars  but  its  own 
from  its  track,  by  prohibitory  charges  for  hauling  them. 
Other  railways  have  been  able  to  drive  out  competition 
in  the  coal  industry,  by  the  same  ability  to  show  favor- 
itism in  charo-es  or  services.  But  if  their  charires  to 
the  competing  carriers  were  fixed,  on  the  distinct  and 
permanent  basis  of  the  rate  per  ton-mile  required  to 
pay  dividends,  the  exclusion  of  competition  by  prohib- 
itory charofes  would  be  iruarded  ao-ainst  with  tolerable 
security.  The  railways  and  railway  officials  interested 
in  mines  or  manufactures  are  enabled  to  destroy  com- 
petition only  by  their  monopoly  in  transportation. 
Let  the  right  of  every  one  to  transport  freight  on  equal 
terms  with  them  be  enforced,  and  coiupetition  will 
be  free  and  ftiii'.  There  may  be  practical  reasons  in 
favor  of  a  system,  in  which  the  railway  could  furnish 
the  motive  power  and  nothing  more,  or  of  one  in  which 
cari'iers  might  make  up  and  haul  tlieir  own  trains;  but 
the  final  determination  of  this  question  may  be  left  to 
discussion  and  experience,  provided  that  the  principle 
of  free  competition  is  secured.  Tliei'e  are  otlier  details 
of  the  reform,  which  must  be  left  for  farther  considera- 


4iG  The  Hallways  and  the  Hepublic. 

tioD.  Some  of  them  will  be  of  great  practical  impor- 
tance, but  they  are  secondary  to  the  essential  principle 
of  the  reform.  Let  them  be  settled  in  whatever  way  the 
legislatures  may  determine,  so  that  this  great  principle 
is  established  and  made  effective,  that  transportation 
over  the  railways  is  open  to  any  man  who  will  conform 
to  the  necessary  regulations,  and  pay  "  stipulated,  uni- 
form, and  reasonable  tolls."  Place  the  public  right 
above  all  dispute  and  be^'ond  all  obstruction,  and  the 
minor  problems  of  the  reform  will  solve  themselves,  by 
experience,  under  free  and  natural  competition. 

At  present  the  tendency  of  opinion  is  strongly  tow- 
ards the  enactment,  at  the  present  session  of  Congress, 
of  some  such  measure  as  the  Reagan  bill,  or  that  in- 
troduced by  Senator  Cullom's  committee.  The  friends 
of  railway  reform  certainly  desire  some  assertion  by  the 
government  of  its  purpose  to  stop  such  outrages  as 
those  which  railway  management  has  committed  upon 
public  rights,  in  the  creation  of  the  Standard  Oil  mo- 
nopoly, the  anthracite  pool,  and  many  minor,  but  no  less 
unjustifiable,  discriminations  and  combinations.  Such 
legislation  would  be  a  first  step  in  railway  reform  ;  but 
no  complete  or  permanent  remedy  for  these  evils  can 
be  found  in  a  mere  jirohibition  of  effects  which  leaves 
the  causes  at  work.  Let  the  history  of  the  discrimina- 
tions and  oppressions  inflicted  by  the  railways  upon 
commerce  be  fully  understood,  and  the  public  mind 
will  see  that  a  single  statute  is  too  frail  a  barrier  to 
withstand  forces  which  have  defied  the  common  law 
and  the  constitutions  of  many  states.  Sooner  or  later, 
by  intelligent  discussion  or  through  the  failure  of  oth- 
er means,  it  will  become  plain  that  the  only  effective 
reform  is  to  destroy  the  cause  out  of  which  all  the  evils 


The  PuMic  Highway.  447 

of  the  system  spring,  by  taking  away  the  mouoj^oly  of 
the  railways,  and  making  them  public  Ligtways  in  fact 
as  well  as  in  name. 

AVlietlier  legislation  sLall  attack  the  mere  surfoce  in- 
dications of  these  evils  or  strike  at  their  root ;  whether 
the  law  shall  seek  to  restrain  discriminations  and  com- 
binations, by  establishing  commissions,  which  may  be 
inefficient  or  may  become  mere  tools  of  the  great  cor- 
porations ;  whether  it  shall  enact  prohibitions  of  abuses, 
leavinsr  their  causes  to  work  in  secret,  and  leavinsr  the 
guilty  parties  the  power  and  the  motive  to  override  and 
nullify  the  law;  or  whether  it  shall  remove  the  cause 
of  the  great  wrongs  of  railway  management,  by  abolish- 
ing the  monopoly  of  the  corporations  in  their  tracks, 
and  substituting  for  it  the  free  competition  wliicli  pre- 
vailed on  all  public  highways  before  the  railway  sys- 
tem was  conceived  —  these  questions  must  be  deter- 
mined by  the  power  of  enlightened  public  opinion ; 
and  when  the  decision  is  made,  it  will  be  registered  in 
laws  by  Congress  and  the  legislatures. 

A  proper  understanding  of  this  plan  of  reforming 
the  railways  "will  recognize  its  moderate  and  conserva- 
tive character.  It  is  conservative  in  its  preservation 
of  the  principles,  which,  from  the  earliest  stages  of  rail- 
way development,  have  been  acknowledged  as  essen- 
tial to  the  public  rights  on  the  highwa3"s.  It  aims  to 
maintain  the  great  principle  of  competition,  and  to  give 
free  scope  to  the  natural  laws  of  trade.  It  is  conserva- 
tive in  its  opposition  to  the  innovation  by  which  the 
railways  have  seized  exclusive  privileges  on  their  tracks, 
and  in  antai^onizim]:  the  still  G:reater  and  more  radical 
violation  of  principles  which  they  are  attempting,  in 
abolishing  competition  through  combination.     It  does 


448  The  Railways  and  the  Hejpublic. 

not  resort  to  the  novel  and  untried  expedients  of  plac- 
ing the  vast  interests  of  commerce  under  the  supervi- 
sion and  tutelao-e  either  of  ejovernraent  commissioners 
or  pooling  officials ;  nor  does  it  rely  on  restricting  the 
operations  of  transportation  by  legislative  regulation, 
either  in  the  interest  of  the  public  or  for  the  support 
of  the  railway  policy.  The  sole  purpose  is  to  preserve 
and  make  effective  well-established  principles  of  la\v 
and  of  trade,  and  to  uproot  all  dangerous  and  revolu- 
tionary practices  that  have  grown  up  with  a  new  in- 
dustry. Such  a  plan  of  reform,  seeking  to  enhance  the 
best  interests  of  the  public,  and  to  promote  the  legiti- 
mate prosperity  of  the  railroad  interest,  cannot  be  light- 
ly rejected.  Its  harmony  with  the  fundamental  laws, 
both  of  democratic  government  and  of  independent 
commerce,  must  command  the  earnest  consideration  of 
all  unbiassed  students  of  the  subject. 


CHAPTER  XL 

COKPORATIONS   IN    POLITICS. 

Whether  railway  reform  is  sought  by  legislative 
restrictions,  by  commissions,  by  state  ownership,  or  by 
enforcing  equal  rights  upon  the  roads  as  real  public 
highways,  in  any  of  these  cases  there  will  be  need,  first, 
of  wise  legislation,  then  of  energetic  and  incorruptible 
officers  to  administer  it,  and  finally  of  upright  and  able 
courts  to  interpret  and  apply  it.  Any  reform  must 
begin  by  subordinating  the  railway  coi'porations  to  the 
^vill  of  the  people.  While  the  organization  of  both 
parties,  in  many  states  and  even  in  the  nation,  is  largely 
controlled  by  agents  of  these  corporations,  ^vho  regard 
all  popular  rights  and  convictions  as  secondary  to  their 
own  interests,  the  work  appeal's  not  only  arduous  but 
almost  impossible.  If  the  executive  government  can  be 
influenced  by  the  corporations,  every  appointment  of  a 
commission  will  merely  arm  them  with  a  new  instru- 
ment to  amuse  and  delude  the  public;  every  legal  pro- 
hibition will  be  a  dead  letter  in  administration,  and 
the  courts  themselves  may  be  made  tools  of  monopolists. 
If  the  railways  were  purchased  by  the  state,  while  the 
great  railway  kings  can  control  its  officers,  the  transfer 
would  be  the  most  stupendous  and  infamous  job  in 
financial  history,  and  the  roads  would  become  vast  and 
permanent  engines  of  corruption  and  favoi'itism.  What- 
ever is  attempted  is  certain  to  be  delayed  at  eveiy  step, 

29 


450  The  jRailwmjs  and  the  Bepublic. 

from  the  ward  meeting  to  the  cabinet,  by  the  obstruc- 
tive and  corrupting  influences  of  corporate  wealth.  On 
the  other  hand,  these  very  obstacles  strengthen  the 
motive  for  reform,  and  furnish  overwhelming  reasons 
by  which  the  champions  of  the  public  interests  may 
advocate  it.  That  corporate  power,  as  it  is  now  exer- 
cised, is  a  standing  danger  to  popular  integrity  and  re- 
publican freedom ;  that  it  is  corrupting  the  machinery 
of  government  and  perverting  it  from  an  agency  of  the 
people  to  an  agency  of  the  corporations,  is  the  essential 
fact  in  the  relations  between  the  railways  and  the  re- 
public which  forces  the  issue  upon  the  nation.  Kepub- 
lican  government  is  attacked,  in  the  centre  of  its  life,  by 
the  persistent  dishonesty  and  corruption  with  which 
these  ao-frreaations  of  m-eed  and  wealth  have  defiled 
our  political  system. 

The  power  of  the  corporations  in  politics  lies  in  the 
control  of  unlimited  wealth,  without  the  restraints  of 
conscience.  This  is  not  hyperbole,  but  simple  fact. 
When  a  public  question  is  to  be  decided,  and  millions 
of  dollars  are  to  be  made  or  lost  by  the  decision,  a 
motive  is  thrown  into  the  scale  which  is  practically  re- 
sistless. The  corporation,  whose  vast  interests  will  be 
affected  by  political  action,  has  no  other  purpose  in  be- 
ing but  to  expend  money  for  the  gain  of  more,  and 
knows  no  argument  so  convincing  and  satisfactory  as 
the  almighty  dollar.  Besides,  if  any  such  corporation, 
with  an  exceptional  and  miraculous  scrupulousness, 
should  abstain  fi-om  these  methods,  it  would  be  crowded 
out  of  existence  by  the  competition  of  its  less  scrupu- 
lous rivals.  The  immense  power  of  the  railways  for 
corruption  is  made  available  by  the  practical  ethics  of 
the  corporate  system,  which  recognize  no  limitationb  of 


Corporations  in  Politics.  451 

honor.  It  is  an  old  proverb  that  "  corporatioDS  have 
no  souls,"  but  it  is  a  terrible  fact  of  our  present  political 
life  that  corporations  have  no  consciences.  The  im- 
personal entity  for  whose  benefit  legislators  are  bribed, 
or  ward  caucuses  purchased,  has  no  scruples  at  the 
crime.  It  is  free  from  the  moral  restraints  which  orov- 
ern  individuals  in  prosecuting  their  interests  before 
le2:islatures  or  courts.  Accordino-  to  another  readinf*- 
of  the  old  dogma  of  monarchical  ethics,  the  corj^ora- 
tion  can  do  no  wrong,  and  some  one  can  always  be 
found  to  transact  the  most  shameless  or  insidious 
operations  of  public  bargain  and  sale  for  its  benefit. 
The  agent  of  corruption  is  paid  for  infamy  as  part  of 
his  services;  the  corporation,  devoid  of  moral  character 
or  obligations,  has  no  compunctions  to  restrain  it; 
while  the  highly  respectable  and  influential  members 
of  the  corporation  have  no  connection  with  such  cor- 
ruption, save  to  acquiesce  in  it  and  to  pocket  the 
profits. 

Such  practices  are  not  peculiar  to  railway  coi'poi'a- 
tions.  They  occur,  to  a  greater  or  less  degree,  in  the 
political  relations  of  water  corporations,  electric  com- 
panies, gas  companies,  telegraph  companies,  and  even 
manufacturing  companies,  where  their  opportunities  for 
profit  can  be  aflt'ected  by  the  exercise  of  governmental 
power.  The  raihva3's  are  the  greatest  and  most  i~)ower- 
ful  of  all  these  organizations,  their  interests  are  most 
directly  affected  by  legislation  and  by  public  adminis- 
tration, and  their  relations  to  the  public  are  the  sole 
subject  of  this  work.  But  the  nature  of  corporate  in- 
fluence in  politics  is  always  the  same.  Tlie  sole  aim 
is  pecuniary  profit;  the  impersonal  character  removes 
all  limitations  of  conscience  or  personal  responsiVjility; 


452  The  Railways  and  the  HepuMic. 

and  the  benefits  to  be  obtained  from  some  lefrislative 
or  judicial  action,  when  filtered  tLrough  the  medium 
of  the  corporation  to  the  pockets  of  its  upright  mem- 
bers, are  purified  of  corruption.  While  such  notions  of 
corporate  conduct  are  in  vogue,  the  "best  citizens,"  whose 
greater  activity  in  politics  is  so  widely  urged,  will  do 
'or  permit,  in  their  capacity  as  shareholders  or  direct- 
ors, acts  which  they  would  scorn  to  do  as  individuals ; 
and  the  lights  of  society  will  hold  themselves  clear  of 
all  such  transactions,  by  carefully  looking  the  other 
way  while  there  is  ground  for  suspicion  that  they  are 
going  on. 

The  methods  by  which  corporate  interests  control 
political  action  may  be  classified  broadly  in  two  great 
divisions.  The  first  includes  the  election  or  appoint- 
ment of  representatives  of  the  railways  to  public  trusts 
in  which  they  can  serve  the  cor2:)orate  interests.  The  sec- 
ond covers  the  use  of  their  immense  pecuniary  resources 
in  downright  bribery,  or  indirect  influence,  of  those 
already  holding  such  trusts.  The  first  method  may 
involve  no  direct  corruption  of  the  electing  or  appoint- 
ing power.  The  transfer  of  a  railway  oflacial  to  the  Sen- 
ate of  the  United  States,  or  the  election  of  a  railroad 
attorney  to  a  state  legislature,  may  be  secured  by 
the  high  character  and  popularity  of  the  candidate; 
but  the  character  of  the  representatives  in  Congress 
and  the  legislatures,  where  the  railway  power  is  great, 
suggest  that  more  tangible  arguments  prevail  in  their 
election  than  ability  or  statesmanship.  The  votes 
which  send  a  railroad  president  to  the  Senate,  or  place 
a  railroad  attorney  on  the  bench  may  not  be  directly 
purchased  ;  yet  the  nominating  machinery,  the  popular 
vote,  may  have  been  controlled  by  influences  no  less 


Corporations  in  Politics.  453 

coiTupting  and  effective  thcan  bribery.  However  oc- 
cult and  insidious  such  influences  may  Lave  been,  the 
constant  presence  of  known  representatives  of  the  cor- 
porations in  such  positions  shows  the  deliberate  pur- 
pose of  the  great  power,  wdiose  sole  end  is  profit,  and 
whose  methods  are  not  restrained  by  moral  obligations, 
to  secure  political  protection  and  control. 

The  method  of  directly  attacking  the  integrity  of 
the  representatives  and  servants  of  the  people,  to  se- 
cure their  adherence  to  corporate  interests,  is  hazard- 
ous and  expensive  when  applied  to  high  departments 
of  government,  Avhich  are  under  the  constant  inspection 
and  criticism  of  the  public.  It  is  therefore  less  frequent, 
as  I  am  glad  to  believe,  in  efforts  to  influence  the  ac- 
tion of  the  national  government,  than  the  former  plan. 
But  as  we  go  down  the  scale  of  political  power  and 
prominence,  the  dangers  of  exposure  decrease,  and  the 
frequency  of  direct  or  indirect  acts  of  corruption  in- 
creases rapidly.  The  character  of  the  men  wliose  ac- 
tion is  to  be  purchased  renders  them  more  easy  of  con- 
quest. The  necessity  for  keeping  an  unsullied  reputa- 
tion is  less  urgent,  their  individual  means  are  less,  and 
their  antecedents,  when  drawn  from  the  lower  ranks 
of  political  life,  often  mark  them  as  willing  subjects 
of  barter.  Hence  bribery  by  corporations,  direct  or 
indirect,  is  far  more  frequent  in  the  state  legislatures 
than  in  Congress;  while  the  same  practice  in  municipal 
bodies  may  be  said  to  be  general.  It  is  a  contribution 
to  the  maxims  of  corruption,  by  one  of  the  lights  of 
lobby  management  in  Pennsylvania,  that  it  is  cheaper 
to  buy  representatives  or  delegates  after  they  are 
elected  than  to  elect  the  men  wanted ;  and  if  this 
is  true  of  the  highest  political  bodies  of  a  great  state, 


454  The  Railways  and  the  Rejpvhlic. 

it  cannot  be  doubted  that  corporations  in  cities  find  it 
most  economical  and  satisfactory  to  gain  \vbat  votes 
are  wanted  by  downright  purchase,  or  by  equivalent 
measures  more  or  less  veiled. 

Looking  first  at  the  high  places  of  national  govern- 
ment, the  most  prominent  evidences  of  corporate  power 
at  present  are  of  the  class  first  named,  the  corporations 
having  secured  representation  in  the  greatest  and  most 
responsible  offices.  Thus  current  rumor  ascribes  the 
appointment  of  one  of  the  members  of  the  present 
cabinet  to  campaign  contributions,  by  hundreds  of  thou- 
sands of  dolLars,  out  of  the  profits  of  the  most  defiant 
and  unscrupulous  monopoly  yet  established  by  railway 
favoritism.  Such  a  rumor  may  have  no  more  foundation 
than  any  partisan  charge,  but  it  is  pertinent  as  show- 
ing the  estimate  which  public  opinion  places  on  the 
power  of  the  corporations.  As  a  partisan  imputation 
it  may  be  balanced  by  one  on  the  other  side  of  politics, 
which  hints  that  a  vast  contribution  to  a  campaign 
fund  raised  an  eminent  corporation  lawyer  to  the  Su- 
preme Bench  of  the  United  States.  If  this  be  true,  the 
danger  to  the  public  interest  is  far  more  serious.  The 
assertion  that  Jay  Gould  paid  $100,000  to  the  Eepub- 
lican  campaign  fund  in  1880,  in  return  for  which  Judge 
Stanley  Mathews  was  nominated  to  the  Supreme  Bench, 
is  denied  as  a  political  slander;  but  the  fact  remains 
that  this  brilliant  advocate  of  the  railway  theories  of 
law  has  been  placed  in  that  high  tribunal,  and  that 
his  presence  there,  together  with  Justice  Field,  long  a 
judicial  advocate  of  the  corporations,  is  expected  to 
protect  the  railways  in  future  against  such  construc- 
tions of  law  as  the  Granger  decisions. 

ISTo  consideration  of  this  subject  can  omit  to  notice 


Corporations  in  Politics.  455 

the  extmordinaiy  tenderness  towards  the  land-grant 
corporations,  shown  by  one  great  department  of  the 
government  during  two  administrations,  and  by  an- 
other department  during  at  least  a  portion  of  that  time. 
Nothing  seems  to  be  clearer  than  that  those  corpora- 
tions should  have  been  held  to  a  strict  construction  of 
their  bargain  with  the  government.  The  territory 
which  the  government  could  hold  open  for  settlement 
by  the  people  was  rapidly  being  occujoied ;  the  royal 
generosity  of  the  nation  to  these  corporate  favorites 
had  in  nearly  every  instance  been  abused,  and  a  num- 
ber of  these  companies  had  notoriously  failed  to  carry 
out  the  conditions  on  which  the  public  domain  was 
granted  to  them.  Surely  the  duty  of  the  executive 
departments  charged  with  such  matters  was  plain. 
There  might  be  legal  technicalities,  by  which  the  for- 
feiture of  the  land  grants  could  be  avoided.  There 
might  be  some  doubt  whether  Congress  should  not 
take  the  first  steps  towards  restoring  the  forfeited  lands 
to  the  public.  But  it  was  not  the  part  of  a  faithful 
administration  to  decide  these  questions  against  the 
people.  They  should  be  left  to  the  courts,  while  tlie 
executive  should  hold  what  it  could  of  the  disputed 
territory  for  actual  settlers.  The  contrast  between 
what  should  have  been  done  and  what  has  been  done 
reflects  severely  upon  the  integrity  of  these  administra- 
tions. Legal  rulings,  by  the  law  department  of  the 
nation,  recognized  the  lands  as  still  the  property  of  the 
companies.  Patents  were  issued  by  the  Interior  De- 
partment, on  these  rulings,  between  the  closing  of  its 
offices  at  night  and  their  opening  next  morning.  Lands 
were  handed  over  by  tens  of  millions  of  acres  to  cor- 
porations which  had  obviously  ftiiled  to  fulfd  the  con- 


456  The  Railways  and  the  Rejpubllc. 

ditions  of  the  grant;  and  wliile  about  130,000,000  of 
acres  are  yet  in  dispute,  the  first  active  steps  taken  by 
Congress  or  the  executive  for  preserving  these  vast 
territories  to  free  settlement  were  instituted  within 
the  last  year,  under  the  overwhelming  pressure  of  pop- 
ular opinion.  Hardly  anything  more  than  the  actual 
history  of  the  land  grants  is  needed  to  suggest  to  the 
people  the  question  whether  they  or  the  corporations 
have  been  represented  by  the  government. 

The  presence  of  corporate  influence  in  the  United 
States  Senate  is  well  understood.  The  railway  mem- 
bership of  that  body  is  the  most  eminent  and  weighty 
representation  of  the  corporate  cause;  and  its  ability 
and  respectability  make  it  the  bulwark  and  fortress  of 
that  cause,  against  remedial  or  restrictive  legislation. 
The  high  character  and  large  fortunes  of  those  who 
liave  crowned  their  railroad  career  with  seats  in  that 
body,  generally  raise  them  above  suspicion  of  direct 
corruption,  whatever  may  be  thought  of  the  means 
employed  to  secure  their  election.  The  number  of  rail- 
way representatives  in  the  Senate  cannot  be  exactly 
stated,  lest  injustice  be  done  to  several  senators  who 
are  difficult  to  classify.  A  few  years  ago,  it  was  cur- 
I'ently  asserted  in  public  journals  that  nineteen  sena- 
tors, one  fourth  of  the  whole  body,  came  to  it  from 
active  connection  ^vith  railway  management,  and  large- 
ly as  a  result  of  that  connection.  This  number  included 
some  senators  rather  recklessly  assigned  to  the  service 
of  the  corporations,  and  has  been  reduced  by  the  more 
or  less  involuntary  retirement  of  several.  On  the  other 
hand,  these  losses  to  the  railway  cause  may  have  been 
fully  made  up,  by  the  recent  addition  of  two  senatorial 
representatives  of  the  Standard  Oil  Company,  and  by 


Corporations  in  Politics.  457 

the  recent  entrance  of  the  great  figure-head  of  the  Cen- 
tral Pacific  Railway,  as  senator  from  California.  It  is 
not  fiiir  to  say  that  these  men  deliberately  choose  to 
serve  their  corporate  interests  rather  than  the  nation 
in  public  office.  IMany  of  them  believe  that  the  inter- 
ests of  the  railways  are  the  public  interests.  Their 
habits  of  life,  their  associations,  their  business  training, 
their  success  in  the  service  of  the  corporations,  and, 
above  all,  their  interests  sujiport  that  belief.  When 
Senator  Brown,  of  Georgia,  last  winter  seriously  in- 
formed the  Senate  that  all  these  complaints  against  the 
railroads  are  imfouuded,  that  "competition  will  not 
work  in  railroading,"  and,  in  effect,  that  the  best  thing 
for  the  nation  is  to  recognize  the  great  and  unalloyed 
benefits  which  the  corporations  confer  on  the  people, 
he  doubtless  believed  every  word  that  he  said.  His 
environment  as  a  railroad  ])resident  jDroduced  the 
conviction  in  his  mind  that  he  was  sheddinc:  the  liirht 
of  truth  upon  a  subject  misunderstood ;  but  the  fact 
that  the  most  radical  measures  of  I'egulation  have  been 
adopted  in  his  own  state,  where  the  aggressions  of  the 
railways  have  been  trifling  compared  with  those  prac- 
tised in  some  of  the  Northei-n  States,  proves  that  Sena- 
tor Brown  represents  the  views  of  the  corporations  and 
not  the  views  of  the  people  of  Georgia.  The  presence 
of  this  large  element,  in  the  highest  deliberative  body 
of  the  nation,  pledged  to  the  cause  of  the  corjiorations 
by  their  antecedents,  their  individual  interests,  and  their 
real  though  disguised  constituency,  is  a  serious  obstacle 
to  any  thorough  reform  of  railway  abuses.  Tlie  ob- 
stacle is  the  greater  from  the  variety  of  attitudes  which 
the  railway  representation  can  assume.  Tliey  can,  as 
already  said,  openly  advocate  legislation  while  mean- 


458  The  Railways  and  the  Bepublic. 

iug  to  render  it  futile.  Xo  doubt  uiany  of  the  sena- 
tors who  voted  for  the  Culloni  bill  sincerely  desired 
some  conservative  and  reasonable  remedy  for  the  evils 
it  prohibits ;  but  there  is  also  no  doubt  that  the  bill 
was  passed  in  the  Senate  by  votes  designed  to  prevent 
any  legislation,  while  appearing  to  favor  it.  The  rail- 
way interest  in  the  Senate  is  a  bulwark,  which  the  cor- 
porations have  been  erecting  about  their  cause  for 
years.  The  value  of  a  representative  in  that  body  has 
been  long  recognized  by  the  great  corporations.  The 
demoralizing  means  by  which  some  such  representa- 
tives were  placed  there,  concern  most  nearly  state 
politics;  but  one  conspicuous  instance  is  worth  recall- 
ing in  this  connection. 

Two  senators  in  the  present  Congress  represent,  in 
name,  different  states,  but  in  reality  one  great  petroleum- 
refining  corporation  and  master  of  the  trunk  lines.  One 
of  them  was  a  member  of  the  House  of  Representatives 
in  the  Forty-fourth  Congress.  Whether  the  Standard 
Oil  Company  has  any  immediate  object  to  gain  from 
the  national  government  does  not  appear;  and  perhaps 
its  recent  acquisition  of  a  seat  in  the  cabinet  and  two 
seats  in  the  Senate  are  simply  luxuries,  such  as  over- 
grown riches  can  afford  to  indulge  in.  But  in  the  lower 
house,  these  gentlemen  were  of  use  to  the  corporate 
cause,  in  smothering  one  of  the  earliest  attempts  at  Con- 
gressional inquiry  into  the  discriminations  which  made 
that  monopoly  a  success.  On  May  16,  1876,  a  resolu- 
tion  was  introduced  in  the  House  of  Kepresentatives 
for  investigating  discriminations,  which  by  the  objec- 
tions of  Mr.  H.  B.  Payne,  then  a  member  from  the 
Cleveland  district,  was  first  deferred,  and  then  put  in 
the  hands  of  the  committee  on  commerce.    There  Mr.  J. 


Corporations  in  Politics.  459 

N.  Camdeu,  the  head  of  the  West  Virginia  branch  of 
the  Standard  Oil  Company,  appeared  as  the  adviser 
of  his  representative,  the  chairman  of  the  committee, 
and,  after  a  perfunctory  opening  of  the  investigation, 
had  it  shelved,  the  question  arising  whether  Mr.  A.  J. 
Cassatt,  of  the  Pennsylvania  Railroad,  should  be  forced 
to  testify  on  the  subject  of  special  contracts.  The  pres- 
ent prominence  of  the  question  would  make  it  impos- 
sible for  Senators  Payne  and  Camden  to  smother  in- 
vestigation in  the  Senate;  but  that  tljey  may  yet  in 
some  way  serve  the  cause  of  monopoly  is  not  the  less 
probable,  because  Senator  Camden  assumes  the  guise 
of  a  legislator  who  is  in  favor  of  restricting  railway 
abuses.  A  story  of  a  partnership  between  the  two 
senators  from  New^  Jersey,  as  legislative  agents  of  the 
Pennsylvania  Railroad,  which  attracted  some  attention 
last  year,  has  been  denied  under  oath  by  the  persons 
involved,  and  must  not  be  repeated  here.  But  it  is, 
nevertheless,  an  important  fact  that  one  of  the  sena- 
tors, an  ex-railway  official,  represents  the  cause  of  the 
corporations  in  that  body. 

The  constitution  of  the  House  of  Representatives,  at 
present,  is  much  less  fiivorable  than  that  of  the  Senate 
to  the  political  supremacy  of  the  corporations.  Some 
members  there  are,  like  the  Honorable  W.  L.  Scott,  re- 
cently elected  from  Pennsylvania,  whose  ftime  is  solely 
that  of  railway  millionaires,  and  whose  vast  fortunes 
are  largely  the  direct  result  of  the  discriminations  re- 
viewed in  this  work.  On  the  other  side  of  the  House, 
the  chamj^ion  of  tlie  railway  cause  in  last  winter's  de- 
bate has  placed  himself  on  record  as  liaving  promoted 
corporations  which  deliberately  issued  stock  and  debt 
to  three  times   the   amount   of  the  cash   investment, 


4G0  The  Railways  and  the  Repvhlic. 

and  imposed  the  inflated  issues  on  the  public.  But 
the  House  is  more  directly  in  connection  with  the  peo- 
ple than  the  Senate ;  and  it  is  an  encouraging  sign  of 
the  progress  of  public  opinion  on  this  issue,  that  a  great 
majority  of  its  members  in  the  last  session  accepted  the 
measure  which  was  presented  to  them  as  most  efficient 
for  restraining  the  principal  evils  in  railway  traffic. 
The  records  of  the  House  of  Representatives,  however, 
furnish  a  terrible  warning  against  the  corporate  prac- 
tice of  gaining  the  support  of  members  by  pecuniary 
influence.  The  most  conspicuous  instance  is  found  in 
that  cemeter}'  of  political  reputations,  the  report  on  the 
Credit  Mobilier.  The  insidious  approaches  by  which 
afj-ents  of  corporate  schemes,  unrestrained  by  any  scru- 
ples, gradually  bind  the  people's  representatives  to 
their  interests,  are  manifold ;  but  this  wholesale  mur- 
der of  national  characters  typifies  them  all.  How  many 
of  the  Congressmen,  who  were  quietly  and  plausibly 
induced  to  take  shares  in  that  great  and  successful  pub- 
lic swindle,  knew  that  they  were  becoming  tools  of 
corporate  adventurers,  it  is  hard  to  tell.  Some  of  them, 
doubtless,  thought,  as  they  pleaded  in  their  defence, 
that  they  were  simply  sharing  in  the  general  prosperi- 
ty. Others,  no  less  certainly,  took  care  to  quiet  their 
consciences  by  looking  only  at  their  profits.  The  sali- 
ent fact  is,  that  a  score  of  most  promising  careers  were 
cut  short,  by  the  discovery  that  they  had  been  used  by 
the  Pacific  Railway  speculators.  Such  corruption  as- 
sumes a  hundred  forms.  Gifts,  loans,  investments,  fa- 
vors of  infinite  variety  may  be  brought  to  surround  a 
public  man ;  until  all  his  circumstances  and  prospects 
tie  him  to  the  cause  of  the  corporations.  The  knowl- 
edge of  what  has  been  done,  and  especially  the  epi- 


Corporations  in  Polities.  461 

tapbs  on  political  prospects  slaughtered  by  the  Credit 
Mobilier,  must  always  show  what  unscrupulous  and 
irresponsible  corporations  can  effect,  in  corrupting  the 
highest  political  instrumentalities. 

A  striking  illustration  of  this  power,  as  exercised 
upon  the  machinery  of  politics,  is  afforded  by  the  high- 
est candidates  of  the  two  great  parties  in  recent  politi- 
cal campaigns.  The  acknowledged  head  of  one  great 
party,  who  in  his  retirement  sways  its  counsels,  and  in 
his  former  candidacy  for  the  presidency  achieved  the 
utmost  possibilities  of  perfect  organization,  aided  by 
liberal  expenditure,  owes  much  of  his  prominence  to  a 
great  fortune  secured  by  years  of  railway  operations. 
On  the  other  hand,  two  of  the  presidential  candidates 
of  the  other  party  have  been  accused  of  connection,  dur- 
ing their  congressional  careers,  with  corrupt  schemes 
of  the  Credit  Mobilier  variety.  One  of  them,  now  in 
his  grave,  denied  all  such  imputations ;  the  other  has 
often  asserted  thiit  his  investments  were  leccitimate.  It 
is  not  the  purpose  of  this  work  to  take  part  in  partisan 
assaults  and  accusations.  I^ut,  apart  from  tlie  question 
whether  the  relations  of  Tilden,  Garfield,  or  Blaine  with 
corporations  were  in  any  way  inconsistent  with  their 
personal  integrity,  the  unquestioned  facts  are  signifi- 
cant. Men  who  have  held  the  highest  honors  of 
both  parties  have  been  connected  closely  with  the  cor- 
porate cause;  at  least  two  of  tliem  were  so  intiniately 
allied  with  tlie  railways  by  their  personal  interests  and 
j)rivate  foi-tunes  that,  upon  any  issues  between  tlie  wel- 
fare of  the  people  and  the  corporations,  their  predispo- 
sition would  be  in  favor  of  the  railways.  Add  to  these 
great  names  the  list  of  second-class  railway  magnates, 
who  have,  in  their  political   careers,  swayed  the  ma- 


462  The  Railways  and  the  Republic. 

chinery  of  parties  as  cliairmen,  secretaries,  or  members 
of  the  national  committees,  and  it  may  well  be  ques- 
tioned whether  the  railway  power  is  not  more  control- 
ling in  the  organization  of  the  two  great  parties  than 
in  the  national  government. 

That  a  great  industr}'^,  employing  the  highest  order 
of  administrative  abilitv,  and  extendinic  all  over  the 
land,  should  furnish  members  of  Congress  and  mana- 
gers of  political  campaigns,  is  natural.  Indeed,  in  the 
present  development  of  our  politics,  when  each  great 
interest  claims  its  representation  in  legislatures,  the 
railway  interest  may  have  as  good  a  right  to  send  sen- 
ators and  representatives  to  Congress  as  the  silver  in- 
terest or  the  iron  interest.  When  we  reach  the  politi- 
cal millenium,  in  ^vhich  every  public  man  will  repre- 
sent the  whole  people,  or  Avhen  the  railways  are  so  or- 
o;anized  that  there  is  no  antaironism  between  their  aims 
and  the  public  welfare,  the  presence  of  such  men  as 
some  of  tliose  whom  the  railway  power  has  placed  high 
in  politics  will  be  a  subject  of  approval  rather  than 
criticism.  But  when,  in  the  presence  of  a  great  ques- 
tion, on  which  the  railways  are  united  against  the  pub- 
lic interests,  we  find  them  steadily  but  stealthily  filling 
the  highest  places  with  their  representatives  and  agents, 
the  danger  of  their  political  influence  is  obvious.  Every 
representative  of  the  railways  in  high  office  is  an  addi- 
tional threat  against  popular  supremacy.  Its  serious 
nature  will  be  better  understood,  if  we  examine  the 
operations  of  the  corporations  uj)on  some  of  the  lower 
levels  of  politics. 

Our  limits  forbid  any  detailed  examination  of  the 
cases  in  which  raihvay  corporations  have  purchased  or 
controlled  the  legislatures  of  states  or  the  councils  of 


Corporations  in  Politics.  463 

cities;,  but  reference  to  two  or  three  glaring  instances 
will  suffice.  The  most  conspicuous  of  all  is  the  com- 
plete control  which  a  great  corporation  Las  had,  for 
twenty  years  or  more,  over  the  State  of  Pennsylvania. 
The  old  joke  of  moving  to  adjourn  the  legislature  of 
that  state,  "  if  the  Pennsylvania  Railroad  has  no  more 
business  for  this  body  to  transact,"  dates  from  the  ear- 
ly stages  of  corporate  development;  but  hardly  a  leg- 
islature has  convened  in  that  state,  for  many  j'ears,  in 
^vhich  it  would  have  been  felt  to  be  pointless.  With 
one  brief  interval  of  legislative  independence,-  the  laws 
of  the  commonwealth,  as  far  as  that  corporation  has 
any  interest  in  tliem,  have  been  made  by  its  managers 
and  registered  by  the  legislature.  When  the  Pennsyl- 
vania Railroad  joined  the  conspiracy  to  build  up  the 
Standard  Oil  Company's  monopoly,  it  was  expected,  as 
its  share  of  the  contract,  to  control  legislation  in  Penn- 
sylvania as  well  as  the  rates  of  transportation  ;  and  the 
contract  was  fulfilled  in  one  respect  as  in  the  othei",  un- 
til the  law-makers  of  two  years  ago,  with  exceptional 
independence,  passed  a  free-pipe  law.  This  body  was 
elected  in  a  year  of  popular  revolt,  in  the  Republican 
party,  from  the  domination  of  a  corrupt  "  ring,"  whose 
defeat  attracted  national  attention,  its  influence  liaving 
extended  to  national  politics.  This  political  cabal 
named  leo-islators  and  Cono^ressmen,  nominated  c-overn- 
ors,  sent  packed  delegations  to  the  national  conventions, 
and  relegated  to  private  life  public  men  whom  it  could 
not  use.  But  it  has  not  been  so  widely  understood 
that  its  head,  when  elected  to  the  Senate  of  tlie  United 
States,  was  president  of  a  great  railway  tril)utary  to 
the  Pennsylvania  Railroad,  and  that  the  active  mana- 
gers of  the  cabal  are  the  paid  agents  and  lobbyists  of 


464  The  Railways  and  the  Repiiblic. 

the  corporation.  Aided  by  the  contributions  of  the 
railroad,  it  has  swayed  for  years  the  politics  and  leg- 
islation of  the  second  state  of  the  Union.  The 
natural  result  has  been  the  degradation  and  infamy 
which  have  characterized  the  political  life  of  the 
state. 

The  public  mind  was  shocked  in  this  state  five  years 
ago,  by  the  exposure  of  the  riot -claims  bribery,  for 
which  a  leading  agent  of  the  corporation  was  sentenced 
to  the  penitentiary.  But  the  only  surprising  filets  in 
the  case  were  the  exposure  and  sentence.  The  crime, 
though  perhaps  on  a  smaller  scale,  had  been  made  fa- 
miliar by  frequent  repetitions.  The  riot  claims  were 
founded  on  the  losses  of  the  railway  in  the  riots  of 
1877.  The  railroad  corporation  presented  to  the  legis- 
lature an  exao-iierated  estimate  of  the  damacre ;  and  the 
attempt  to  impose  the  burden,  amounting  to  $4,000,000, 
on  the  tax-payers  of  the  state,  excited  popular  protest, 
so  that  the  bill  was  defeated  by  a  small  majority.  It 
was  in  his  efforts  to  secure  its  passage  that  the  princi- 
pal lobbyist  of  the  corporation  was  afterwards  proved 
to  have  been  guilty  of  bribery.  This  man,  W.  H.  Kem- 
ble,  of  Philadelphia,  was  convicted  and  sentenced  for 
the  crime ;  but  the  day  after  the  sentence  was  imposed, 
the  pardon  board  of  the  state  relieved  him  of  the  pen- 
alty. Mr.  F.  B.  Gowen,  who  opposed  the  riot  claims,  as 
the  head  of  the  railway  which,  next  to  the  Pennsylva- 
nia Railroad,  is  the  largest  tax-j)ayer  in  the  state,  was 
active  in  the  investigation  of  the  bribery,  and  after- 
wards 2:)ublicly  declared  in  Philadelphia,  of  the  lobby 
agents,  municipal  wire-pullers,  and  jury -fixers  of  the 
state,  that  "  all  of  this  loathsome  class  of  malefactors 
were  workins:  in  the  interests  of  those  of  -whom  one 


Corporations  hi  Politics.  4C5 

swore  that  he  was  employed  by  the  Pennsylvania  Rail- 
road Company." 

The  influence  of  the  railway  upon  legislation,  which 
had  been  weakened  by  these  exposures  and  by  the  pop- 
ular agitation  of  1882,  was  revived  in  the  last  legis- 
lature, which  refused  to  enforce  the  provisions  of  the 
state  constitution  for  the  restriction  of  the  railway  pow- 
er. Bills  were  proposed  simply  providing  proper  pen- 
alties for  the  violation  of  these  provisions.  Yet  the 
railroad  masters  of  the  legislature  determined  that  these 
provisions,  framed  by  a  convention  of  the  best  minds 
of  the  state,  and  approved  by  an  overwhelming  majori- 
ty of  the  popular  vote,  should  not  be  enforced ;  and 
both  branches  of  the  legislature  obeyed  them,  and  re- 
fused to  pass  the  bills.  Like  the  attempt  now  making 
to  complete  the  purchase,  by  the  same  corporation,  of 
the  South  Pennsylvania  Raih'oad,  in  defiance  of  the 
constitution,  which  prohibits  the  purchase  of  parallel 
or  competing  lines,  this  event  shows  that,  in  the  State 
of  Pennsylvania,  the  will  of  the  railway  is  greater  than 
the  la^v.  But  worse  remains  to  be  told.  The  corrup- 
tion of  the  judiciary  is  a  still  greater  offence  than  any 
which  have  been  mentioned ;  and  the  sarcastic  remark 
in  a  legal  text-book,  that  the  Pennsylvania  Railroad 
I'uns  the  Supreme  Court  of  that  state  with  the  same 
success  that  it  does  its  own  trains,*  points  to  the  suc- 

*  John  D.  Lawsoii,  in  his  work,  "Leading  Cases  Simplified,"  referring 
to  the  decision  in  the  case  of  Thorogood  rs.  Bryan,  says:  "The  Ameri- 
can courts  decline  to  follow  it,  except  in  Pennsylvania.  Here,  perliaps, 
is  the  place  to  warn  tlic  student,  so  far  as  the  law  of  carriers  is  concerned, 
not  to  pay  much  heed  to  the  decisions  of  tiie  Supreme  Court  of  Pennsyl- 
vania, at  least  during  the  past  ten  or  fifteen  years.  The  Pennsylvania 
Railroad  appears  to  run  that  tribunal  Avith  the  same  success  that  it  docs 
its  own  trains." 

30 


466  The .  Hallways  and  the  Republic. 

cess  of  its  persistent  policy  of  placing  its  attorneys  on 
the  bench.* 

There  are  some  signs  of  an  attempt  to  throw  off  the 
railway  rule  in  this  state.  The  Democratic  governor, 
elected  in  the  political  upheaval  of  1882,  has,  in  each 
of  his  messages,  urged  upon  the  legislature  the  duty  of 
making  the  constitutional  restraints  effective  by  law. 
His  attorney-general  has  recently  brought  a  suit  in  eq- 
uity to  stop  the  scheme  for  buying  up  the  South  Penu- 
sylv^ania  project  and  crushing  out  competition.  If  he 
succeeds  in  enforcing  the  constitutional  prohibition 
against  the  absorption  of  rival  routes,  it  may  yet  ap- 
pear that  the  constitution  in  Pennsylvania  is  not  per- 
manently subject  to  the  will  of  the  corporations.  The 
corporate  authorities,  however,  seem  confident  of  suc- 
cess ;  perhaps  expecting  that  the  Supreme  Court  will 
uphold,  in  their  behalf,  au}^  pretence  for  nullifying  the 
constitution.  But  their  course  is  likel}^  to  strengthen 
the  minority  party,  which,  at  the  recent  convention, 
declared  itself  against  railway  discriminations,  in  favor 
of  upholding  the  constitution,  and  of  restraining  the 
railway  power.  Should  the  Supreme  Court  aid  the 
railway  power  in  nullif}'ing  the  constitution,  and  should 
the  Democratic  ]xu'ty  show  itself  in  earnest,  a  political 
revolution  may  result  which  will  overturn  the  rule  of 
the  Pennsylvania  Railroad. 

*  But  while  this  Tvork  is  in  press  the  same  court  has  deciclcd,  in  the 
case  of  Duncan  vs.  the  Pennsylvania  Railroad,  that  the  company  is  liable 
for  consequential  damages  caused  by  its  appropriation  of  lands.  The  rea- 
soning in  this  case  destroys  the  pretence  that  the  charters  of  the  older 
rofitls  exempt  them  from  control  by  the  state  constitution  of  1874,  and 
perhaps  shows  tliat  the  court  will  enforce  other  provisions  of  that  instru- 
ment which  the  railways  have  defied,  and  thus  end  some  of  the  most  im- 
portant abuses  wc  have  described. 


Corporations  in  Politics.  467 

This  corporate  supremacy,  tLrongli  the  Republican 
party  in  one  state,  finds  a  parallel  in  another  state  un- 
der Democratic  ascendency.  The  power  of  the  Stand- 
ard Oil  Company  in  the  Democratic  legislature  of 
Ohio  has  been  asserted  in  the  election  of  a  United 
States  Senator,  and  in  the  defeat  of  a  bill  to  give  com- 
peting refiners  equality  in  pipe-line  transportation  ^vith 
that  monopoly.  It  has  been  charged  that  wholesale 
bribery  was  used  to  secure  these  results.  Such  char'^^es 
by  political  opponents  might  not  command  belief,  al- 
though the  persistent  refusal  to  investigate  them  is  sus- 
picious. But  the  Democratic  agent  of  the  bribery  has 
acknowledged  it.  During  the  last  session  of  the  body, 
stigmatized  by  its  partisan  opponents  as  "  the  coal-oil 
legislature,"  the  legislative  agent  of  the  "  ring,"  which 
is  credited  with  its  control,  appeared  on  the  floor  in  a 
state  of  gross  intoxication.  The  ofi:ence  was  too  pub- 
lic and  notorious  to  be  overlooked,  and  a  committee 
Avas  appointed  to  enforce  discipline.  Before  the  com- 
mittee had  begun  its  work,  the  offender  declared  that 
the  House  dared  not  discipline  him;  that  he  had  paid 
too  many  members  money  for  their  votes ;  that  he  had 
a  list  of  those  who  had  been  so  purchased ;  and  that, 
if  he  were  punished  for  his  behavior,  he  would  expose 
a  majority  of  that  body  as  having  accepted  bribes. 
The  excitement  was  great;  the  challenge  was  accept- 
ed ;  he  was  called  before  the  committee  and  asked  for 
the  list.  lie  then  retracted  his  charge,  and  all  further 
proceedings  against  him  for  his  outrage  upon  the  rules 
of  the  House  were  quietly  dropped. 

The  corrupting  interference  of  corporations  in  state 
politics,  such  as  we  have  referred  to  in  Pennsylvania 
and  Ohio,  has  been  notorious  in  other  states.     The  rule 


468  The  Railways  and  the  Rejpublic. 

of  the  Central  Pacific  in  California,  and  the  assertion 
made  in  Congress  that  tlie  Union  Pacific  maintains  a 
political  organization  in  Nebraska,  and  has  already  or- 
dained the  defeat  of  Senator  Van  Wyck  for  his  attacks 
upon  the  railway  power,  during  the  debates  last  win- 
ter, are  illustrations  that  might  be  ranlti23lied.  Some 
states  are  so  fortunate  that  either  the  watchfulness  of 
their  voters  or  the  insignificance  of  their  corporations 
preserves  them  largely  from  such  corrupting  influences ; 
but  in  many  there  have  been  political  scandals  fully  as 
disgraceful  and  dangerous  as  any  of  those  mentioned. 
The  history  of  such  transactions  in  New  York  is  wide- 
ly known,  and  has  been  thoroughly  treated  by  other 
writers,  so  that  a  mere  reference  to  it  will  suffice.  It 
is  notorious  that  the  railways  of  that  state  have  ob- 
tained legislation  to  sanction  the  abuse  of  stock  wa- 
tering, whenever  they  wanted  it.  After  the  search- 
ing investigation  of  the  Hepburn  committee,  the  cor- 
porate power  was  able  to  defeat  its  measure  for  i-ail- 
road  regulation,  and  to  substitute  in  its  place  a  commis- 
sion without  power.  A  striking  picture  of  the  meth- 
ods of  the  corporations,  in  dealing  with  legislation  in 
that  state,  was  furnished  by  the  testimony  of  Mr.  Jay 
Gould. 

This  prominent  railway  operator  has  been  described 
by  his  subsequent  fellow-director  in  the  Union  Pacific 
Company,  Mr.  Charles  Francis  Adams,  as  "  a  man  with- 
out a  conception  of  morality."  He  and  Mr.  C.  P.  Hun- 
tington have  made  valuable  contributions  to  the  liter- 
ature of  the  subject,  showing  how  railway  corporations 
corrupt  politics.  Mr.  Gould's  statement,  before  an  in- 
vestigating committee,  of  the  methods  employed  to  ad- 
vance the  interests  of  the  Erie  Railway,  can  never  lose 


Corporations  in  Politics.  469 

its  instructive  cLaracter.  The  funds  of  the  corpora- 
tion ^Ye^e  used,  by  the  plunderers  controlling  it,  to  elect 
members  of  the  legislature  who  would  support  their 
schemes.  They  cared  not  a  whit  whether  their  political 
tools  were  Eepublicans  or  Democrats.  All  that  was 
needed  was  that  they  should  be  elected ;  and  so  Mr. 
Gould  artlessly  says, "  We  were  Republicans  in  Repub- 
lican districts,  and  Democrats  in  Democratic  districts, 
but  always  for  the  Erie  Railway."  The  companion 
picture  furnished  by  the  Huntington  letters,  published 
last  year,  throws  no  less  light  on  corporate  lobbying  in 
Congress.  Here,  in  the  confidence  of  private  corre- 
spondence, we  learn  from  the  railway  kings  how  some 
statesmen  serve  the  corporations,  under  the  pretence  of 
opposing  them ;  how  editorial  opinions  in  leading  jour- 
nals are  a  good  investment  for  the  corruption  fund ; 
how  unsuspected  lobby  agents  are  set  to  work,  appar- 
ently without  concert,  but  under  secret  orders  from  one 
head ;  how,  in  short,  the  unlimited  resources  of  great 
corporations  employ  all  that  is  unscrupulous,  wily,  dis- 
reputable, and  dangerous  in  politics,  to  attack  members 
in  their  weak  points,  to  flatter,  bribe,  and  control  them, 
so  that  they  must  support  the  corporations.  Messrs. 
Huntington  and  Gould  are  good  witnesses  to  the  dan- 
ger and  corruption  of  representative  institutions,  a\  her- 
ever  great  corporations  bring  their  unlimited  wealth 
and  their  conscienceless  tactics  to  bear  on  politics  or 
lecrislation. 

Instances  might  be  multiplied,  in  whicli  corporate 
unscrupulousness  and  legislative  greed  and  weakness 
have  conspired  to  promote  legislation  in  the  interest 
of  the  corporations  and  to  tlie  detriment  of  tlie  people. 
For  the  purj^oses  of  this  work,  it  is  only  necessary  to 


470  The  Railways  and  the  Iiej)uhUG. 

point  out  the  extent  of  this  corruption,  and  the  fact 
that  it  seems  to  be  associated  with  the  adniiaistration 
of  the  greatest  and  most  eminent  railway  managers. 
That  it  has  long  been  at  work,  and  had  reached  an 
appalling  extent  at  a  comparatively  early  period,  is 
shown  by  the  testimony  of  the  treasurer  of  the  New 
York  Central  Kailroad  nearly  twenty  years  ago,  be- 
fore a  committee  of  the  Constitutional  Conv^ention 
of  the  State.  He  admitted  that  the  amount  advanced 
to  the  president  of  the  company,  for  "  expenses  per- 
taining to  the  legislature,"  was  $60,000  dollars  dur- 
ing a  single  session,  and  that  during  the  preceding  two 
or  three  years  it  had  been  $205,000;  that  no  records 
or  entries  were  made  of  the  disbursements ;  that  the 
board  confirmed  the  advance  after  it  had  been  made; 
and  that  the  item  was  simply  "  charged  to  the  treasu- 
rer's ofiice  and  remains  there."  The  expenditure  of 
such  a  sura  for  such  a  purpose  might  well  be  considered 
startling  enough ;  but  that  it  was  rivalled  or  even  sur- 
passed by  another  corporation  of  the  same  state,  was 
shown  by  the  declaration,  a  fe^v  years  later,  of  the  com- 
mittee before  which  Mr.  Gould's  testimony,  already  re- 
ferred to,  was  taken,  that  the  revolution  in  the  manage- 
ment of  the  Erie  Company  "  laid  bare  a  chapter  in  the 
secret  history  of  I'ailroad  management  such  as  has  not 
been  permitted  before."  Yet  soon  after  this  revela- 
tion, the  failure  of  either  corporations  or  legislators  to 
lay  the  lesson  to  heart  was  shown  by  the  passage  of 
a  bill  for  "  the  Fourth  Avenue  improvement,"  in  New 
York  city,  in  the  interest  of  the  New  York  Central 
and  Hudson  E-iver  Railroad,  which  was  secured  by 
such  methods  that  a  member  of  the  legislature,  from 
the  cit}^,  resigned  his  seat  in  disgust,  and  declared,  in  a 


Corporations  in  Politics.  471 

statement  to  his  constituent?,  that  ifc  was  impossible  to 
fight  against  the  corrupt  corporate  influences.  How 
persistently  this  power  of  corruption  has  been  cm- 
ployed  in  later  years,  and  with  what  impunity  to  its 
agents,  may  be  seen  by  recalling  what  occurred  in  New 
Jersey  in  1882.  A  bill  to  secure  to  the  railroads  the 
control  of  the  entire  water-front  of  Jersey  City  "was 
vetoed  by  the  governor.  Notwithstanding  his  expo- 
sure of  the  scheme,  an  attempt  was  made  to  pass  it  over 
the  governor's  veto,  and  the  means  employed  were  dis- 
closed under  oath  by  a  member  who  had  been  ap- 
proached. He  was  asked  to  solve  a  mathematical  prob- 
lem, couched  in  the  followinoj  suijo-estive  terms:  "As 
your  vote  is  to  167,  so  is  8500  to  your  answer;"'  and 
when  he  said  that  twice  the  amount  miirht  make  him 
answer,  he  was  told  that  $500  was  what  the  other  mem- 
bers were  getting,  except  those  who  were  engaged  as 
attorneys  for  the  bill.  Finally,  upon  advice  from  his 
friends,  the  member  accepted  an  increased  offer  of  ^500, 
to  be  left  in  his  room,  and  $500  to  be  paid  after  the 
passage  of  the  bill.  The  money  was  left  in  his  room, 
the  bribery  was  at  once  exposed,  an  investigation  was 
ordered,  and  the  committee  reported  that  the  bribery 
was  fully  proved  and  named  the  guilty  agent.  It  is  a 
significant  indication  of  the  power  of  corruption,  over 
both  the  making  and  the  execution  of  the  laws,  that 
after  the  lapse  of  three  years,  the  agent  in  question  has 
not  been  brought  to  trial,  although  New  Jersey  justice 
is  proverbial  for  its  promptness. 

Again,  it  was  asserted  in  Massachusetts,  in  1882,  that, 
in  a  single  day,  corrupt  efforts  to  influence  members 
were  made  by  the  lobbyists  of  one  railroad  corpoi-a- 
tion  against  a  pending  bill,  and  by  those  of  another  in 


472  The  Railways  and  the  Republic. 

its  favor.  lu  view  of  such  facts,  the  doubt  arises  wheth- 
er it  is  possible  for  the  railway  interest  to  approach 
the  legislatures  for  auy  actiou,  without  producing  ve- 
nality and  corruption. 

These  are  a  few  examples  of  the  effect  of  corporate 
interference  in  politics.  The  instances  of  political  cor- 
ruption, which  have  come  to  light  in  the  last  twenty 
years,  have  prompted  severe  comments  on  the  down- 
ward tendency  of  our  politics.  The  Credit  Mobilier 
exposures,  the  land-grant  dishonesty,  the  "machine 
rule"  in  Pennsylvania,  the  Erie  railway  corruption,  have 
been  represented  as  proofs  of  moral  degeneracy.  But 
what  the  indignant  public  have  not  generally  perceived 
is,  that  the  secret  source  of  all  this  dishonesty  is  in  the 
wealth  of  the  corporations.  Not  that  there  are  no  ras- 
cals but  those  paid  by  the  railways.  But  these  irre- 
sponsible bodies  offer  the  most  remunerative  employ- 
ment for  political  rascality;  and  thus  they  have  be- 
come the  stronghold  and  source  of  nearly  all  bribery 
and  betrayal  of  public  trusts.  "Wherever  there  is  a 
powerful,  disciplined,  and  unscrupulous  "  ring"  of  polit- 
ical managers  in  control  of  legislation,  there  can  nearly 
always  be  found,  in  the  background,  some  great  line 
of  railway,  whose  interests  occupy  the  ring,  and  whose 
money  rewards  it.  On  the  other  hand,  wherever  a  great 
railway  controls  legislation,  or  places  its  representatives 
in  high  office,  whether  in  Maryland  or  New  York,  Penn- 
sylvania or  California,  there  will  be  found  the  centres 
of  political  venality  which  threaten  to  reduce  our  pol- 
itics to  a  competition  in  corruption.^  It  is  the  inevit- 
able result  of  the  entrance  of  the  railways  into  politics. 
Impersonal  powers,  whose  only  moral  characteristic  is 
greed,  will  inevitably  find  political  agents  without  scru- 


Corporations  in  Politics.  473 

pies,  to  secure  their  ends.  They  will  naturally  ally 
themselves  with  the  lowest  class  of  politicians."  But 
the  lowest  class  of  politicians  becomes  the  most  pow- 
erful, when  wielding  the  unlimited  resources  of  the  cor- 
porations, and  acting  in  concert  with  their  respectable 
managers.  The  demoralizing  influence  of  the  dishonest 
class  in  politics  has  been  the  theme  of  political  essay- 
ists; but  they  have  commonly  failed  to  discern  the  in- 
visible ties  which  unite  that  class  with  the  kings  of 
commerce,  who  support  it  by  their  money  and  profit 
by  its  disgraceful  services. 

The  root  of  the  railway  power  in  politics  is  to  be 

*This  lias  been  so  forcibly  stated  by  Mr.  Charles  Francis  Adams  that 
an  extended  quotation  is  pertinent : 

"  There  is  a  natural  tendency  to  coalition  between  them  and  tlic  low- 
est strata  of  political  intelligence  and  morality,  for  their  agents  must  obey, 
not  question.  They  exact  success  and  do  not  cultivate  political  morality. 
The  lobby  is  their  home,  and  the  lobby  thrives  as  political  virtue  decays. 
The  ring  is  their  symbol  of  power,  and  the  ring  is  the  natural  enemy  of 
political  purity  and  independence.  The  existing  coalition  between  the 
Erie  Eailway  and  the  Tammany  Ring  is  a  natural  one,  for  the  former  needs 
votes,  the  latter  money.  This  combination  now  controls  the  legislature 
and  courts  of  New  York.  That  it  controls  also  the  executive  of  the  state, 
as  well  as  that  of  the  city,  was  proved  when  Governor  llofl'man  recorded 
his  reasons  for  signing  the  infamous  Erie  director's  bill.  It  is  a  new 
power  for  -which  our  language  contains  no  name.  Wc  know  wliat  aris- 
tocracy, autocracy,  democracy,  are ;  but  we  have  no  word  to  cxjiress  '  gov- 
ernment by  moneyed  corporations.'  Yet  tiie  people  already  instinctive- 
ly seek  protection  against  it,  and  look  for  such  protection,  significantly 
enough,  not  to  their  own  legislatures,  but  to  the  single  autocratic  feat- 
ure retained  in  our  system  of  government — the  veto  by  the  executive. . . . 
The  next  step  will  be  interesting.  As  the  Eric  ring  represents  the  com- 
bination of  the  corporation  and  the  hired  proletariat  of  a  great  city;  as 
Vanderljilt  cmljodies  the  autocratic  power  of  Ciesarism  introduced  into 
corporate  life,  and  as  neither  alone  can  obtain  com])lrte  control  of  the 
government  of  the  state,  it  perhaps  only  remains  for  the  coining  man  to 
carry  the  combination  of  elements  one  step  in  advance,  and  put  Cajsarisni 
at  once  in  control  of  the  corporation  and  of  the  proletariat,  to  bring  our 
vaunted  institutions  within  tlic  rule  of  all  historic  precedent." 


474  Tlie  -Railways  and  the  Hepuhlic. 

found  in  the  lobbies  wliicli  bribe  lesrislators,  and  in 
the  "ward  politicians  "who  control  votes  for  money ;  and 
the  ability  of  those  low  elements  to  make  themselves 
felt  in  our  political  system  lies  in  the  corruption  funds 
which  they  draw  from  corporate  resources. 

This  is  the  political  power  which  must  be  overcome, 
to  make  commerce  independent  of  the  railways,  and 
to  purify  our  politics.  Its  magnitude  and  danger  can- 
not be  overstated ;  but  they  should  arouse  the  entire 
nation  to  tlie  task  of  destroying  it.  The  subject  can- 
not be  dismissed  without  referring  again  to  the  weighty 
words  of  the  writer  who  first  exposed  these  evils :  "  Po- 
litical corruption  is  the  foundation  on  which  corpora- 
tions always  depend  for  their  political  powei"."  He 
foretold,  with  almost  prophetic  accuracy,  the  danger  of 
permitting  the  expansion  and  consolidation  of  the  rail- 
ways without  check  or  regulation.*     The  threatening 

*  "  Everywhere,  and  at  all  times,  however,  they  illustrate  the  truth  of 
the  old  maxim  of  the  common  law  that  corporations  have  no  souls.  Only 
in  New  York  has  any  intimation  yet  been  given  of  what  the  future  may 
have  in  store  for  us  should  these  great  powers  become  mere  tools  in  the 
hands  of  ambitions,  reckless  men.  The  system  of  corporate  life  and  cor- 
porate power,  as  applied  to  industrial  development,  is  yet  in  its  infancy. 
It  tends  always  to  development  —  always  to  consolidation  —  it  is  ever 
grasping  new  powers  or  insidiously  exercising  covert  influence.  Even 
now  the  system  threatens  the  central  govorunieut," 

"  Though  the  regular  process  of  development  may  be  depended  upon, 
in  its  ordinary  and  established  course,  to  purge  American  society  of  the 
worst  agents  of  an  exceptionally  corrupt  time,  there  is  in  the  history  of 
this  Erie  corporation  one  matter  in  regard  to  which  modern  society  ev- 
erywhere is  directly  interested.  For  the  first  time  since  the  creation  of 
these  enormous  corporate  bodies,  one  of  them  has  shown  its  power  for  mis- 
chief, and  has  proved  itself  able  to  override  and  tram])le  on  law,  custom, 
decency,  and  every  restraint  known  to  society,  without  scruple  and,  as  yet, 
without  check.  The  belief  is  common  in  America  that  the  day  is  at  hand 
when  corporations  far  greater  than  Erie — swaying  power  such  as  has 
never  in  the  world's  history  been  trusted  in  the  hands  of  mere  private 
citizens,  controlled  by  single  men  like  VanderbiU,  or  by  combinations  of 


Corporations  in  Politics.  475 

influence,  wLicli  he  exposed  in  its  early  stages,  Las  now 
attained  the  strenfrtli  of  raatiirity,  and  in  the  raafrni- 
tilde  of  its  domination  over  polities  it  calls  for  the 
union  of  the  whole  popular  strength  against  it.  Not 
less  for  the  removal  from  politics  of  vast  financial  re- 
sources, employed  by  conscienceless  bodies,  than  for  the 
emancipation  of  commerce  from  anomalous  combina- 
tions and  monopolies,  must  the  power  of  the  people, 
which  is  the  source  of  all  legislation,  be  exerted,  to  as- 
sert the  supremacy  of  the  public  interests  and  the  sub- 
ordination of  the  corporations. 

Nothing  but  the  power  of  the  united  people  can 
successfully  cope  with  the  power  of  the  corporations. 
Whatever  measure  of  reform  is  persistently  demanded 
by  an  enlightened  public  opinion  will  be  established 
by  law,  and  eventually  upheld  by  the  courts.  The 
first  condition  of  reform,  therefore,  is  a  comprehensive 
and  thorough  understanding  of  the  subject  by  the  peo- 
ple. Every  man  in  tlie  nation  ought  to  know  how 
public  rights  are  aft'ected  by  the  abuses  of  the  existing 
system.  To  know  that  corporations  are  powerful  and 
that  individuals  are  weak  will  not  suffice.  It  should 
be  as  familiar  to  the  public  mind  as  the  multiplication 
table,  how  the  monopoly  of  the  railways  in  transpor- 
tation enables  them  to  discriminate  in  rates,  to  ci'ush 
out  independent  trade,  to  extinguish  small  merchants, 
and  to  dominate  great  commercial  interests;  how  tlicir 
combinations  to  control  indii^ies  tend  to  oppress  pro- 
duction and  to  keep  down  wages;  how  they  suspend 
work  through  indefinite  periods  for  selfish  ends;  how 

men  like  Fislc,  Gould,  and  L.anc — after  having  created  a  system  of  quiet 
but  irrepressible  corruption,  will  ultimately  succeed  in  directing  govern- 
ment itself." —  C.  F.  Adams. 


476  The  Railways  and  the  Hepublic. 

their  eflbrts  to  establish  a  centralized  control  over  the 
entire  transportation  of  the  land,  by  a  single  unauthor- 
ized and  irresponsible  agency,  has  resulted,  and  may 
again  result,  in  oppressing  the  consumer  of  the  great 
agricultural  staples  while  impoverishing  the  producer, 
by  imposing  artificial  burdens  upon  the  interchange  of 
products ;  and,  finally,  how  the  tendency  of  their  prac- 
tices, as  a  system,  is  to  concentrate  all  the  profits  and 
rewards  of  industry  in  the  hands  of  a  few,  while  the 
people  at  large  have  little  share  in  the  benefits  accru- 
ing from  the  march  of  improvement.  It  should  be 
understood  that,  while  such  aggressions  are  not  uni- 
versal on  the  i:)art  of  the  railways,  yet,  at  present,  the 
power  to  commit  them  is  inherent  in  every  corpora- 
tion Avhich  has  the  exclusive  privilege  of  transporta- 
tion upon  a  public  highway,  and  that  the  temptation 
to  use  this  power  must  continue  as  long  as  that  exclu- 
sive privilege  is  maintained.  Let  the  causes  of  these 
evils  be  universally  understood,  and  public  opinion  will 
compel  legislation  to  remove  them. 

Under  a  political  system  whose  ultimate  power  rests 
with  the  masses,  the  demands  of  the  public  welfare  w^ill 
ultimately  prove  superior  to  all  obstructions  interposed 
by  corporate  wealth.  But  the  struggle  will  be  severe, 
and  public  opinion  must  be  aroused  to  an  arduous  and 
long-continued  effort,  in  order  to  attain  thorough  and 
permanent  reform.  It  would  be  better  for  the  railway 
interest,  as  well  as  for  the  public  at  large,  if  the  neces- 
sary legislation  could  be  secured  without  bringing  the 
subject  into  the  arena  of  politics.  But  the  course  of 
the  leading  corporations,  which  have  intrenched  them- 
selves in  the  control  of  legislatures,  in  the  possession 
of  many  seats  in  both  branches  of  Congress,  and  even 


Corporations  in  Politics.  477 

iu  the  citadel  of  justice,  the  Suj^reme  Court  of  the 
United  States,  leaves  slight  hope  that  a  popular  vic- 
tory can  be  so  easily  won.  The  reform,  which  shall 
make  free  the  highways  of  commerce,  can  only  be  fully 
secured  after  a  long  and  earnest  struggle,  wliich  shall 
drive  the  railway  power  from  the  control  of  legislation, 
shall  raise  the  executive  above  all  temptation  to  court 
the  support  of  corporate  wealth,  and  shall  put  the  ju- 
diciary beyond  the  suspicion  of  bias  in  its  favor.  The 
sooner  this  struggle  begins,  the  better  is  the  prospect 
that  the  end  may  be  peacefully  attained  by  legislation; 
and  the  longer  it  is  delayed,  the  greater  is  the  danger, 
from  the  growth,  on  the  one  hand,  of  the  railway 
powei',  and  on  the  other  of  an  irresponsible  and  I'eck- 
less  proletariat.  The  one  thi-eatens  the  nation  with 
the  domination  of  a  privileged  class  in  its  great  corpo- 
rations; the  other  with  an  outbreak  of  the  destructive 
and  ruinous  spirit  of  revolution.  If  the  railways  go 
on  as  they  have  begun ;  if  they  continue  to  purchase 
legislators,  to  count  seats  in  Congress  as  their  property, 
and  to  nominate  judges  to  the  higher  courts;  if  they 
continue  to  warp  legislation  to  the  support  of  railway 
supremacy;  if  they  continue  to  erect  artificial  bariiers 
to  the  free  operation  of  great  industries,  and  to  con- 
centrate the  profits  of  commerce  by  their  favors  to  tlie 
privileged  few ;  if  they  continue  to  secure  tlie  enforce- 
ment of  laws  which  protect  their  privileges,  and  to  nul- 
lify those  Avhich  restrict  them  ;  if  tliey  delay  and  ]ire- 
vent  the  passage  of  laws  to  regulate  tliem  and  restrain 
their  powei",  and  cozen  the  pul)lic  with  deceptive  meas- 
ures— in  a  word,  if  all  the  features  wliich  now  ni.-iik 
the  influence  of  great  corporations  in  politics  are  main- 
tained and  perpetuated,  in  defiance  of  efforts  to  restrain 


478  The  Railways  and  the  liepiiblic. 

them  by  peaceful  means,  the  result  will  inevitably  be, 
that  one  day  their  injustice  and  usurpation  will  be  pun- 
ished by  a  revolt  of  the  classes  they  have  wronged,  be- 
side which  the  French  Revolution  will  seem  an  equit- 
able and  peaceful  reform. 

To  prevent  such  a  calamity,  all  lovers  of  free  institu- 
tions, and  of  government  by  constitutional  and  peaceful 
methods,  should  unite  their  efforts.  The  stability  of 
republican  government,  as  well  as  the  independence  of 
our  commercial  institutions,  depends  upon  an  early  and 
decisive  assertion  of  the  principle  that  the  public  wel- 
fiire  shall  be  paramount  to  the  will  of  any  corporate 
magnates.  Whatever  may  be  the  discouragements,  and 
however  powerful  the  influences  to  be  overcome,  all 
honest,  independent,  and  thoughtful  citizens  of  the  re- 
public should  unite  in  resolving  that  this  land  shall 
not  be  left  under  the  domination  of  the  great  railway 
corporations,  but  shall  be  kept  true  to  its  original  form 
of  government  by  a  free  and  intelligent  people.  For 
this  end,  no  less  than  for  the  immediate  vindication  of 
the  freedom  of  trade  from  all  the  abuses  that  have 
been  considered  in  these  pages,  the  public  effort  should 
be  earnest  and  unremitting,  to  assert  the  supremacy  of 
constitutional  principles  over  corporate  power,  and  to 
reduce  the  railways  to  the  function  of  public  servants, 
instead  of  leaving  them  in  their  present  attitude  of 
public  masters.  A  thorough  and  lasting  reform  can 
only  be  secured  by  taking  away  their  exclusive  privi- 
leges, and  placing  their  roads  on  the  legal  basis  of  pub- 
lic use,  wliich  governs  all  public  highways.  The  un- 
restricted independence  of  trade  and  manufactures,  the 
legitimate  prosperity  of  the  railways  themselves,  and, 
finall}^,  the  supremacy  of  free  institutions  and  the  sta- 


Corporations  in  Politics.  479 

Lility  of  representative  government,  are  concerned  in 
the  earnest  and  devoted  advocacy  of  such  a  reform. 
With  these  vast  interests  at  stake,  all  who  have  the 
public  welfare  and  true  interests  of  the  nation  at  heart 
must  support,  with  their  utmost  strength,  the  eifort  to 
make  commerce  free  and  avert  the  evils  of  corporate 
plutocracy. 


INDEX. 


Adams,  C.  F.,  change  in  position  of, 
344,  345;  quotations  from,  on  polit- 
ical influence  of  corporations,  473, 
474. 

Agnew,  Judge,  declares  a  pooling  con- 
tract an  offence,  237. 

Agricultural  districts,  discriminations 
betAveen,  40-43. 

Alger  vs.  Thatcher,  decision  against 
contracts  in  restraint  of  trade,  235, 
236. 

Allegheny  Portage  Railroad,  opera- 
tion of,  443,  444. 

Anthracite-coal  combination,  discrim- 
inations under,  46-50;  example  of 
pooling,  211-213.  example  of  in- 
flated capital,  263,  264. 

Apportionment  of  rnihvay  trafllc,  il- 
lustrated by  case  of  Standard  Oil 
Company,  97-100. 

Atkinson,  Edward,  assertion  that  wa- 
tered stock  is  being  eliminated  by 
natural  causes,  268. 

Baldwin,  Justice,  affirmed  that  rail- 
ways are  public  highways,  118,  119; 
application  of  principles,  130,  186, 
137,  387-391.  424-^9. 

Baltimore  and  Ohio  Railroad,  dis- 
criminations on  coal,  48,  49,  61 ;  re- 
lations with  Standard  Oil  combi- 
nation, 76,  77,  83,  85,  88,  105  ; 
cause  of  first  trunk-line  war  at  C'lii- 
cago,  200;  example  of  sound  capi- 
talization, 263. 

Baxter,  Judge,  decisions  against  dis- 
criminations, 143-147  ;  .severe  re- 
mark on  pooling  contracts,  245. 

Bcekman  r«.  Saratoga  and  Schenec- 
tady Railroad,  117. 

Bigelow,  Judge,  adirms  right  to  con- 
demn exclusive  bridge  franchises 
for  a  street,  434,  435. 

Black,  Judge,  assertion  of,  that  rail- 

31 


waj-s  are  public  highways,  113;  de- 
cisions on  Pennsylvania  Supreme 
Bench,  119,  120;  letter  on  constitu- 
tional provisions  with  regard  to 
railways  in  Pennsylvania.  325. 

Bonaparte  vs.  Camden  and  Amboy 
Railroad,  118;  application  of,  as  to 
prohibitory  tolls  and  monopoly. 
387-389  ;  as  to  public  rights  ou 
highway,  424-429. 

Boston  Water  Power  Compan}-  r.i. 
Boston  and  Worcester  Railroad, 
decision  on  condemnation  of  fran- 
chises for  a  railway,  438. 

Braxendale  in  ir,  English  decision 
against  discriminations  as  to  a  com- 
peting carrier,  142. 

Brown,  Senator,  railway  theories 
urged  by,  284,  457. 

California  railway  commission,  inef- 
fectiveness of,  324,  325,  342. 

Capitalization  of  railways,  ]\Ir.  Fink's 
statement  concerning,  257;  ligures 
for  1884,257,258;  question  on  it.s 
genuinenes.s,  258-272;  of  New  York 
Central,  259.  260;  of  Erie  Railway. 
260,  261 ;  of  Pennsylvania  Railroad, 
261-263;   of  Baltimore   and   Oiiio 
Railroad,  263  ;   of  anthracite  coal 
railroads,  263,  264 ;  of  PacKie  rail 
roads,  264-266  ;  of   Western   rail- 
roads,  266-268  ;   of   recently   con 
slructed   railroads,   268-271  ;   esti- 
mate of  aggregate  ovcr-cnpitaliza 
tion,  271,  272;  Poor's  statement  of. 
272;  effect  of  over-capitalization  on 
investments,  272-278;  actual  prof 
its  of  railways  on  legitimate  caj)! 
taiization,  282,  283;  Jiclilioiis  capi 
talizalion  supported   by  combina 
tion,  283-285. 

Ca.s.'^alt,  A.  J.,  testimony  as  lo  din 
criminations  iu  favor  of  StandNnl 


482 


Index. 


Oil  Company,  84;  grants  rebate  to 
American  Transfer  Company  on 
shipments  of  competitors,  86;  ap- 
pearance before  tirst  Congressional 
investigation,  459. 

Central  Bridge  Company  rs.  Lowell, 
condemnation  of  a  toll  bridge  for  a 
street,  434-486. 

Central  Pacific  IJailway,  special  con- 
tracts on,  03,  180-183  ;  cliarging 
what  freight  will  bear,  63,  177-179; 
example  of  inflated  capital,  265  ; 
not  restrained  by  constitutional 
provisions  or  commission,  325,  342. 

Charleston  «s.  Newcastle,  etc.,  Rail- 
way, English  decision  against  pool- 
ing contract,  241,  342. 

C'harters  of  railways,  must  be  for  es- 
tablishment of  public  highways, 
117-123 ;  subject  to  regulation  of 
the  state,  125-133;  to  be  construed 
in  favor  of  public  rights,  127-130; 
grant  of  power  to  fix  tolls  does  not 
prevent  regulation,  130-133;  earlier 
charters  preserved  public  right  to 
use  vehicles  on  railways,  373,  385- 
389;  later  give  exclusive  privileges 
to  corporations,  389 ;  such  charters 
subject  to  strict  construction,  439. 

Chesapeake  and  Ohio  Railroad,  route 
used  by  independent  refiners  of  pe- 
troleum, 79. 

Chicago  and  Northwestern  Railway, 
example  of  tolls  for  a  true  public 
highway,  398. 

Chicago  and  Northwestern  Railway 
vs.  Illinois,  decision  on  discrimina- 
tions between  grain  elevators,  145, 
146. 

Classification,  discriminations  in,  28- 
38;  always  arbitrary  according  to 
Mr.  Fink,  89. 

Coal,  discriminations  on,  at  Philadel- 
phia, 46-50,  61,  63;  pooling  combi- 
nations on  traflBc  in,  211-213,  228, 
229 

Coe  &  Milsom  vs.  Louisville  and 
Nashville  Railroad. decision  against 
discriminations  between  stock- 
yards, 145,  146. 

Coke,  discrimination  on,  60,  61 ;  con- 
trol of  traffic  by  pooling,  229. 

Columbia  Conduit  Company,  object 
and  organization  of,  74,  75 ;  readied 
Pittsburgh  refineries,  76  ;  forced 
into  sale  to  Standard  Oil  Companv, 
83.. 


Combination,  railway  policy  of,  illus- 
trated by  Standard  Oil  Company, 
97,  101-103;  wars  of  rates  to  en- 
force it,  200-206  ;  object,  to  earn 
profits  on  watered  stock,  275,  276, 
381-285  ;  produces  railway  wars, 
303-305 ;  where  it  is  impossible 
"wars  of  rates  are  prevented,  305- 
307.     {%(tQ  Fooling.) 

Commissions,  for  railway  regulation ; 
provisions  of  Cullom  bill,  333-335; 
theory  of,  335,  336;  wide  variation 
of  powers  proposed  for,  336,  337; 
public  protection  staked  on  inde- 
pendence of,  338-340  ;  experience 
with  state  commissions,  341-350; 
Georgia,  California, and  ISfew  York 
commissions,  343  ;  Massachusetts 
commission,  343,  344;  New  York 
commission,  not  opposed  to  abuses, 
345,  346;  recommends  restraint  on 
construction  of  new  roads,  347,  348 ; 
proved  insufficient  by  experience, 

348,  349;  might  enforce  undue  re- 
straints, 349;  railway  estimate  of, 

349,  350 ;  new  commission  measure 
this  session,  367,  368. 

Common  Law,  decisions  that  rail- 
ways are  public  highways,  117-123 ; 
forbidding  discrimination.s,  136- 
148;  opposed  to  pooling  contracts, 
235-245;  practical  failure  of,  to  re- 
strain railway  abuses,  330-324. 

Commonwealth  of  Pennsylvania  vs. 
Carlisle,  criminal  combinations, 
240. 

Competition,  unequal  operations  of, 
cause  discriminations  between  lo- 
calities, 38-41,54;  purpose  of  pool- 
ing to  prevent,  198-201,  206,  222, 
223;  asserted  by  railway  school  to 
work  disaster,  253-257  ;  prevents 
profits  on  fictitious  capital, 383-386; 
its  presence  or  absence  the  govern- 
ing element  in  discriminations,  387, 
288;  natural  principles  of,  388-390; 
docs  not  require  services  at  a  loss, 
390,  391 ;  application  of,  to  railway 
business,  391-393  ;  excluded  from 
local  traffic  and  suspended  by  pool- 
ing combinations,  393-395;  compe- 
tiUon  of  capital,  parallel  lines,  and 
markets,  395-398;  increase  of  rail- 
way earnings  by  competitive  reduc- 
tion of  rates,  398-301 ;  influence  of 
competition  on  railway  business, 
301,  303;  railway  wars  not  compet- 


Index. 


483 


itive,    o02-30.'5  ;    free    competition  | 
would  prevent  ruinous  rivalry  b)' . 
making  combinations  impossible, 
805-307;  free  competition  prevents 
discriminations,   307-309  ;    its  ob-  ' 
struction  makes  discrimination  pos-  j 
sible,  309,  310;  legitimate  conipeti-  ] 
tiou    secures    railway    prosperity, 
310,  oil;  Hadley's  view  on  compe-  [ 
tition,  311,  312;  remedy  for  railway  | 
abuses  in  free  competition,  312-315 ; 
freedom  of,  on  older  forms  of  the  I 
public  highway,  368-370  ;  how  re-  ' 
strictcd  on  railways,  371 ;  freedom 
of,  in  transportation  practical   in 
railway  operations,  380,  394,  395; 
restricted  in  present  cases  of  joint 
use  of  tracks  b}''  more  than  one  rail- 
way carrier,  382,  383;  free  compe- 
tition on  canals  made  construction 
of  parallel  lines  unheard  of,  419, 
420. 

Connecting  lines,  discriminations  be- 
tween, illegal,  142-147  ;  practice 
and  bearing  of  discriminations  be- 
tween, 183^187. 

Constitutional  provisions  on  the  pub- 
lic character  of  railways,  151,  152; 
not  effectively  enforced,  324,  325. 

Continental  Sugar  Kellning  Company 
o.  Chicago  and  Northwestern  Rail- 
way, injunction  against  freight  di- 
version, 243. 

Corporations  in  politics,  449-479. 
(See  Politics.) 

Cullom  bill,  provisions  of,  333-335: 
effectiveness  of,  dependent  on  con- 
struction, 336-338  ;  would  aflirm 
right  of  Congress  to  regulate  rail- 
ways, 367  ;  new  bill  reported  by 
Cullom  committee,  367,  368. 

Credit  Mobilier,  example  of  corpo- 
rate influence  over  legislators,  460, 
461. 

Damages,  common-law  rule  on , f or  d  is- 
criminations,  322.  323;  triple  dam- 
ages provided  in  Keagan  bill,  357. 

Davy  VH.  Allen,  old  Engli.sh  deci.siou, 
on  monojioly,  238. 

Dcady,  Judge,  construction,  in  ex- 
press ca.se,  132. 

Delaware,  Lackawanna,  and  West- 
ern, ptit  under  ban  by  the  pool,  226; 
secured  injunction  against  connect- 
ing roads,  242,  243. 

Denver  and  New  Orleans  vs.  Atchi- 


son, Topeka,  and  Santa  Fe,  case  in- 
volving discrimination  between 
connecting  lines,  147;  also  pooling 
contracts,  242. 

Denver  and  Rio  Grande  Railway,  ex- 
ample of  tolls  for  a  free  highway, 
399. 

Devereux,  J.  II..  argument  against 
competition  and  stringent  remedies 
propo.sed,  253,  254;  his  example  of 
inflating  capital,  266,  267;  proposes 
publicit}^  of  rates  under  severer  pen- 
alties than  the  Reagan  bill,  355. 

Discriminations,  power  of  railways 
to  inflict  depends  on  proportion  of 
freight  charges  to  cost  of  the  freight, 
25,  26;  produced  by  external  prcss- 
lu-e,  27,  28;  examination  of.  not  ex- 
haustive, 28  ;  on  classification  of 
dry-goods,  29,  30;  on  iron  at  Pitts- 
burgh, 30-33, 43-46, 361 ;  on  dressed 
beef,  33-36;  between  Eastern  and 
"Western  agricultural  products,  40- 
43;  on  anthracite  coal  at  Philadel- 
phia, 46-50  ;  between  long  and 
short  hauls,  50-53  ;  causing  unnec- 
essary carriage  of  freight,  52,  53; 
due  to  unequal  ofTect  of  competi- 
tion, 54,  55;  on  New  York  Central 
and  Erie  roads,  between  shippers, 
56-59;  on  coke,  60,  61 ;  on  gas-coal, 
48,  49,  61,  62:  in  favor  of  live-stock 
"eveners,"  63,  64;  in  favor  of 
Standard  Oil  Company,  67-106;  in 
favor  of  largest  shipper  iihistrated, 
100,  101 ;  ability  to  make  obtained 
from  legislation. 108-1 10;  inconsist- 
ent with  character  of  public  higli- 
way,  135,  136;  common-law  deci- 
sions against,  136-148;  in  favor  of 
connecting  line  illegal,  141,  142, 
147  ;  between  express  compaiiicH 
forbidden,  142,  113;  in  favor  of  lar- 
gest shipper  illegal,  143-145  ;  be- 
tween stock-yards  and  elevators 
enjoined,  145-147  ;  forbidden  by 
state  constitutions,  151,  152  ;  on 
long  and  .sliort  hauls  di.scnssecl, 
157-167;  in  favor  of  largest  ship- 
]KT  discussed,  173-175;  by  rebates 
juid  drawbacks,  175,  176;  in  cliarg- 
ing  what  freiglil  will  bear,  62.63, 
177-180;  by  special  conlracls  to 
control  other  freight  of  Hliippers, 
62,  180-1H3  ;  between  connecting 
lines  di.s<;u.s.sed.  1h:{-187;  u|)held  by 
most  i)owerful  pools,  200  214;  ro 


484 


Index. 


suiting  from  pools,  236-228;  rela- 
tion of,  to  presence  or  absence  of 
competition,  287,  288  ;  impossible 
tinder  free  competition,  307-309  ; 
made  possible  by  obstructing  com- 
petition, 309,  310;  damages  for,  un- 
der common  law,  322,  323;  provi- 
sions of  Cullom  bill  against,  333, 
334,  338;  provisions  of  Reagan  bill 
against,  334,  352-354,  357,  361. 
862;  provisions  of  New  York  bill 
against,  362,  363;  in  classification, 
28-38  ;  between  localities.  38-55, 
148,  151,  157-167;  between  individ- 

■  ual  shippers,  55-65,  168-187. 

Double  charges  on  same  freight  if 
used  for  certain  purposes,  61. 

Drawbacks,  175-177.  (See  Rebates 
and  Drawbacks.) 

Dressed  beef,  discrimination  against, 
33-36. 

Dry -goods,  discrimination  against, 
29,  30. 

Eastern  farms,  depreciation  of,  under 
discrimination,  42. 

Eminent  domain,  power  of,  must  be 
exerted  for  public  use,  110,  111  ; 
used  to  establish  public  higliways, 
111  ;  essential  to  construction  of 
railways.  111;  cannot  be  used  for 
railways  except  as  public  highways, 
112,  113;  otherwise  would  be  un- 
constitutional, 117-119  ;  can  be 
used  to  condemn  right  of  way  and 
franchises  of  one  public  highway, 
for  another  better  suited  to  public 
interest,  430,  431;  authorities  in  fa- 
vor of  this  power,  431-433  ;  deci- 
sions afKrming  it,  433^38. 

Emmons,  Judge,  on  exclusive  privi- 
lege of  railway  transportation  as  a 
mode  of  use,  391,  392,  428. 

Enfield  Bridge  Company  rs.  Hartford 
and  New  Haven  Railroad  Compa- 
ny, condemnation  of  a  bridge  fran- 
chise for  a  railway,  437. 

Erie  Railway,  discriminations  on,  57; 
signed  South  Improvement  con- 
tract, 69;  first  contract  with  Stand- 
ard Oil  Company,  October  1,  1874, 
71.  72;  contract  with  Standard  Oil 
Company,  August  1,1875.78;  aided 
Standard  in  Potts  fight.  82 ;  appor- 
tionment and  rebates  of  petroleum 
traffic,  85, 86 ;  responsible  for  Stand- 
-  ard  monopoly,  100  ;    example   of 


over  capitalization,  260,  231 ;  exam- 
ple of  tolls  under  free  highway  sys- 
tem, 398,  399;  Jay  Gould's  testi- 
mony on  political  methods  of,  468, 
409. 

Erie  and  Northeastern  Railroad  vs. 
Casey,  on  forfeiture  of  charters, 
120 ;  precedent  for  a  severe  remedv, 
330,  333. 

Eveneris,  discrimination  in  favor  of. 
63,  64;  connection  with  successful 
pooling,  209. 

Express  cases,  131,  132, 142,  143. 

Farming  lands,  depreciation  of  in  the 
East,  42. 

Field,  Justice,  assents  to  public  high- 
way doctrine,  121  ;  dissents  from 
Granger  decisions,  126;  represents 
corporate  theories  on  Supreme 
bench,  454. 

Fiudley,  Hon.  J.  V.,  discussion  of 
common-law  rule  for  damages,  323. 

Fink,  Albert,  states  that  classification 
is  always  arbitrar)^  29  ;  view  of, 
that  local  traffic  must  pay  for  the 
investment  in  the  railway,  161 ;  as- 
sertion of,  that  pooling  is  to  pre- 
vent discriminations,  196;  says  ob- 
ject of  pooling  is  to  establish  equi- 
table and  uniform  tariffs,  198;  de- 
nies that  pooling  prevents  competi- 
tion, 199;  claims  that  pools  estab- 
lish through  lines  of  transportation, 
222-224  ;  asserts  that  railways 
should  be  compelled  to  organize 
pools,  252  ;  statement  of  railway 
capital  and  profits,  257,  258  ;  on 
"ruinous  competition,"  303,  305, 
306. 

Forfeiture  of  charters,  decision  on, 
120  ;  a  possible  remedy  for  abuse 
of  railway  powers,  330,  333. 

Franchises,  required  for  ownership  of 
railways,  as  public  highways,  396. 

Free-pipe  bill,  first  proposed  in  Penn- 
sylvania Legislature  and  defeat- 
ed, 75  ;  attempt  unsuccessfully  re- 
newed, 88;  measure  finally  passed, 
in  1883,  95. 

Gas  coal,  discriminations  on,  48,  49, 
61,  62. 

Georgia  Railroad  and  Banking  Com- 
panj'^  vs.  Commissioners,  on  power 
of  state  to  regulate  and  strict  con- 
struction of  charter,  132, 133. 


Index. 


485 


Georgia,  regulation  of  railways  in. 
by  a  commission,  13o,  341,  342  : 
complaint  against,  349. 

Gibson,  Judge,  when  combination  is 
criminal,  240. 

Gould,  Jay,  testimony  of,  on  political 
methods,  468,  469. 

Grain  and  flour,  rates  at  Pittsburgh, 
discriminations  on,  50. 

Grain  traflBc,  example  of  competition 
preventing  discriminations,  309, 
310. 

Granger  cases,  126,  130,  131. 

Greenleaf,  on  inalienability  of  sover- 
eign powers  over  railways,  128,  433. 

Grier,  Justice,  on  condemnation  of 
one  railway's  right  of  way  by  an- 
other, 438. 

Growth  of  railway  powers,  3. 

Ilallett,  Judge,  decision  of,  against 
discriminations  between  connect- 
ing lines,  147;  decision  of,  against 
pooling  contracts,  242. 

Hamilton,  Adelbert,  characterizes 
pools  as  conspiracies,  246,  247. 

Hays  va.  Pennsylvania  CJompany,  de- 
cision against  discrimination^  in  fa- 
vor of  the  largest  shipper,  143-14ij. 

Ilorr,  argument  of,  in  Congress,  for 
lower  rales  on  through  than  local 
traffic,  164. 

Huntington,  C.  P.,  letters  on  lobby- 
ing, 469. 

Illinois  Railway  Commission,  Kanka- 
kee case  argued  before,  158;  pow- 
ers and  effectiveness  of.  342. 

Individual  discriminations,  secrecy 
of,  55,  56;  New  York  investigation 
into,  56-59;  evils  of,  discussed,  108- 
172;  by  lower  rates  to  large  ship- 
pers, 173-175;  by  rebates  and  draw- 
backs, 175-177;'l)y  charging  what 
the  freight  will  bear.  177-180;  by 
contracts  to  control  other  ship- 
ments, 180-183  ;  between  connect- 
ing lines  discussed,  183-187. 

Iron,  rates  on  compared  wilii  grain 
rates,  30-33;  discrimination  on.  as 
between  localities,  44  ;  product  at 
Pittsburgh,  45. 

Kankakee  and  ]\Iattoon  discrimina- 
tion, 51;  discussion  of,  153-161. 

Lake  Shore  Railroad,  discrimination 


in  favor  of  Standard  Oil  Company, 
94,  95. 

Largest  shipper,  discrimination  in  fa- 
vor of,  example  of  Standard  Oil 
Company,  100,  101;  forbidden  by 
common  law,  143-145;  injustice  of, 
173-175. 

Lawrence,  Chief-justice,  decision  on 
discrimination  between  elevators, 
145,  146. 

Lawson,  J.  D. ,  (piotation  from,  on 
Pennsylvania  Supreme  Court,  465. 

Lehigh  Valley  Railroad,  example  of 
tolls  for  true  public  highway, 
398. 

Live-stock  and  drcssed-becf  rates,  33- 
36;  eveners' discriminations,  63,  64; 
example  of  pooling,  209;  traffic  in, 
shows  how  discrimination  is  made 
possible  by  suspension  of  competi- 
tion, 309,  310. 

Local  discriminations,  examples  of, 
38-55;  due  to  inequalities  of  com- 
petition, 38-41,  54;  not  forbidden 
in  common-law  decisions,  148;  lo- 
cal traffic  made  to  bear  greater  bur- 
den of  investment  in  railways,  161. 
See,  also. 

Long  haul,  charged  less  than  shorter 
one,  40  ;  examples  of,  50-53  ;  for- 
bidden by  state  constitutions,  151; 
discussion  on,  in  Congress,  157, 
158;  Kankakee  and  Winona  cases, 
158-162;  due  to  imposing  element 
of  interest  on  capital  more  upon 
non-competitive  than  on  competi- 
tive traffic,  161,  163,  165;  llorr'.s ar- 
gument on,  164;  parallel  between 
railway  rates  and  municipal  taxa- 
tion, 165;  practice  injurious  to  rail 
ways  and  the  public.  16(i,  167;  jiro 
visions  of  Reagan  i)ill  on,  352-351; 
IMassachusetls  law  against.  353  ; 
Pennsylvania  law  against,  354. 

Massachusetts,  commission  for  super- 
vision of  railways, 343-345;  law  pro- 
hibiting charging  more  for  short 
haul  than  I'nr  a  longer  one,  353. 

Mathews,  Justice,  reixirt  coii('<'rning 
method  of  ap|»oiiitmeiit,  454. 

.Maximum  of  rates,  legislation  on,  im- 
I)racticalile.  328-330. 

M((Jniry,  Judge,  decision  in  cxprcHS 
cases,  131 ;  sustains  decision  against 
discriminations  between  coiuiecl- 
ing  lines,   1 17  ;    sustaiu.s  decision 


48G 


Index. 


against  pooling  contracts,  242 ;  on 
necessity  of  exclusive  privileges  of 
transpoi-tatioa  for  railway  compa- 
nies, 392-395. 

Messenger  vs.  Pennsylvania  Railroad, 
decision  on  special  contracts  for 
lower  rates  than  competing  ship- 
pers, 145. 

Mileage,  railway,  increased  growth 
of,  in  Illinois  and  Wisconsin,  since 
Granger  decisions,  18. 

Miller,  "justice,  concurs  in  Granger 
decisions,  126;  affirms  decision  in 
express  cases,  131. 

Mitchell  vs.  Reynolds,  English  deci- 
sion against  contracts  in  restraint 
of  trade,  239. 

Morris  Run  Coal  Company  vs.  Bar- 
clay Coal  Company.decision  against 
contract  to  restrain  competition, 
237. 

Morton,  Judge,  contracts  to  restrain 
trade  against  public  policy,  239. 

New  Castle  and  Richmond  Railroad 
vs.  Peru  and  Indianapolis  Railroad, 
condemnation  of  railway  right  of 
way  for  another  railway,  436. 

New  York  Central  Railroad,  discrim- 
inations of,  57-59;  signs  South  Im- 
provement contract,  69;  contracts 
with  Standard  Oil  Company,  71,  72, 
78;  aids  Standard  Oil  Company  in 
Potts  fight,  82;  apportionment  of 
traffic  and  rebates  to  Standard,  in 
1877,  85,  86  ;  responsibility  for 
Standard  monopoly,  105;  example 
of  stock  -  watering,  259,  260;  testi- 
mony of  treasurer  on  legislative 
expenses,  470,  471. 

New  York  Chamber  of  Commerce 
on  transcontinental  rates,  52. 

New  York,  Chicago,  and  St.  Louis 
Railway,  example  of  stock-water- 
ing, 268,  269;  example  of  parallel- 
ing, 418. 

New  Y'ork  commission  for  supervi- 
sion of  railways,  345-348. 

New  York  legislative  investigation 
on  discriminations,  56-59 ;  on  stock- 
watering,  259,  260. 

Ohio  Legislature  defeated  measures 
asked  by  independent  refiners,  93, 
94;  scandal  in,  467. 

Olcott  vs.  Supervisors,  railways  de- 
clared a  public  highway,  121;  on 


exclusive  privileges  as  a  method  of 
use,  391. 

Pacific  railroads,examples  of  discrim- 
ination between  localities,  52;  ex- 
amples of  stock-inflation,  264-266. 

Parallel  lines  stimulated  by  poolinsr, 
230-232;  facilitated  by  stock-wat ear- 
ing, 275-277;  as  a  relief  to  discrim- 
inations and  excessive  charges,  416- 
418  ;  damage  and  waste  of,  418, 
419;  remedy  for,  419-422. 

Parker,  Chief-justice,  on  contracts  in 
restraint  of  trade,  239;  on  question 
if  the  legislature  can  alienate  the 
power  of  eminent  domain  over  rail- 
ways, 433. 

Pennsylvania  Legislature  defeated 
free-pipe  bill,  75,  85;  passed  free- 
pipe  bill,  95  ;  subservience  of  to 
Pennsylvania  Railroad,  463,  464; 
riot  claims  scandal,  464,  465;  refu- 
sal to  enforce  constitution,  465. 

Pennsylvania  Railroad,  discrimina- 
tions on  coal,  48,  49,  61,  62;  signed 
contract  with  South  Improvement 
Company,  69;  relations  with  Stand- 
ard Oil  Company,  71 ;  prevents  lay- 
ing of  Columbia  Conduit  Compa- 
ny's pipe -line,  75;  opposes  free- 
pipe  bill,  75,  85;  fight  with  Stand- 
ard and  defeat  in  Potts  war,  80-82; 
surrender  to  latter,  82;  correspond- 
ence on  apportionment  and  re- 
bates, 84-86  ;  responsibility  for 
Standards  monopoly,  105;  exam- 
ple of  duplicating  capitalization, 
261-263;  claim  of  immunity  from 
constitutional  restrictions,  325;  ex- 
ample of  tolls  required  on  true 
public  highway,  397;  control  over 
Pennsylvania  Legislature,  463-466. 

Petroleum,  discriminations  on,  72,  73, 
78,  79.  85,  86,  94,  95. 

Philadelphia  and  Columbia  Railroad, 
operation  of,  443,  444. 

Philadelphia,  discriminations  on  coal 
at,  46-50. 

Pierce  vs.  Fuller,  on  contracts  in  re- 
straint of  trade,  235. 

Pittsburgh,  discriminations  against, 
30-33,  43-46,  69-85. 

Politics,  corporations  in,  449-479: 
power  of  corporations  in,  both  an 
obstacle  and  incentive  to  reform, 
449,  450;  impersonal  use  of  wealtb, 
without  restraint  of  conscience, 450- 


Index. 


4S7 


452;  methods  of  controlling  politi- 
cal action,  452-454;  corporate  in- 
fluence   in   national    government. 
454-45G;  railway  membership  of 
United  Slates  Senate,  456-459;  case 
of  Credit  Mobilicr,  460,  461;  rail- 
way intiuence  in  party  organiza- 
tions, 461,  462;  railway  control  of 
Pennsylvania  politics,  463-466;  the 
Ohio  Legislature  and  the  Standard 
Oil    Company.    467  ;    Gould    and 
Huntington,  468,  469;  briberies  in 
New  York,  Xew  Jersey,  and  Mas- 
sachusetts, 470,  471  ;   relations  of 
political  rings  to  corporate  wealth, 
473-474;   quotations  from  C.  f' 
Adams,  473,  474;  united  power  of 
the  people  requisite  to  overcome, 
474-476;   threatening  aspect  of' 
476-479. 
Pooling  forbidden  bv  some  state  con- 
stitutions. 151.  152;  definitions  by 
Vanderbilt,  Jewolt,  and  Fink,  196; 
character  of  pooling  combinations, 
196,  197;  asserted  "not  to  prevent 
competition,  198. 199;  only  success- 
ful when  competition  is  suspended, 
199-201 ;  purpose  of  railway  wars  to 
enforce  pooling,  200-206;  success 
or  failure  of.  varied  by  external 
conditions,  207.208;  three  notably 
successful  pools  — the  live-stock 
pool,  209;  the  Standard  Oil  coml)i- 
nation,  209,  210  ;    the  anthracite 
coal  pool,  211-213;  most  powerful 
when  associated  with  discrimina- 
tions, 213,  214;  success  in  inverse 
ratio  to  number  of  pooling  roads, 
214,  215;  object  of  uniform  rates 
and  of  higii  rates.  215.  216;  rates 
have  fallen  in  spite  of  jjools,  216, 
217;   effect  of  to  produce  violent 
changes  of  rates,  218;   claim  that 
pools  prevent  discrimination,  218- 
220;  disproved  by  exiierience,  220- 
222  ;    claim    that    they    establish 
through  lines,  222-224;  anomalous 
and  unwarranted  power  of  coml)i- 
nations,  224-226;   abuses  possil)le 
under  them,   226-228,   improved 
service  and  cheaper  rates  discour- 
aged, 229,  230  ;  uimecessary  rail- 
road construction  stimulated,  230- 
232,  41H,  419;  violence  of  railway 
wars  increased,  232,  .stock  manip- 
ulations   facilitated    by,   233,  2'M: 
pooling  combinations  against  puij- 


hc    policy,    284  -  238  ;    dccision.s 
against   contracts  in   restraint   of 
trade.  23.5-237;  severe  lamrua'^e  of 
decisions  on,  239.  240;  la'ter  deci- 
sions against  railway  pools,  241- 
245;  dangerous  aspect  of  pooling 
policy  to  the  railways,  248-250; 
proposition  to  enforce  pooling  con- 
tracts by  law,  252-256;  necessary 
to  earn  profits  on  inflated  capital 
275,  276.  281-285;  bearing  of  Cul- 
lom   bill   on,   337;   prohibited   by 
Keagan  bill,  352,  358.     (See,  also, 
Coiiibt  nation.) 
Poor,  H.  v..  statement  on  profits  of 
railways  on  legitimate  capital  273 
282,  283. 
Potts  fight,    of   Pennsylvania   Rail- 
road and  Standard  Oil  Company 
80-82.  ^      *  ' 

Property  rights  as  affected  by  rail- 
way regulation,  17-20,  316,  317. 
Public  highways,  railways  estab- 
lished as.  by  power  of  eminent  do- 
main, 110-120;  decisions  attirmiii"- 
the  principle,  117-123;  if  not  pul> 
lie  highways,  railway  charters  un- 
constitutional, 117-119:  impartial- 
ity the  primary  duty  of.  135-138; 
discriminations  on.  forbidden  by 
common-law  decisions,  138-148; 
constitutional  declarations  that  rail- 
ways are  public  highways.  151, 
princii)le  of,  furnishes  sohition  to 
railway  ])roblem,  369-371;  charac- 
ter of,  should  be  restored  to  the 
raihvay.s,  372;  public  right  to  run 
trains  and  conduct  transportation 
on.  371,  372;  each  class  of,  retiuires 
different  vehicles  and  rules  of  use. 
393-396;  franchises  neces.'^ary  for 
ownership  of,  396.  (See.  also,  'li>m- 
ail/.) 

Railway  jninciples,  reversal  of   20- 
22,  251-257. 

lifi'iriiu  bill,  provisions  of,  334.  385, 
35";  strengtJH^ns  provisions  of  com- 
mon law,  and  facilitates  recourse 
to  the  courts,  351,  356.  357;  dis- 
tinction from  Cullom  bill.  352 -long 
and  short  haul.  i)rovi.sion  of.  3521 
354;  on  jjubliriiy  of  rates,  351-350: 
penalties  jind  j)n;liil)iiions,  357, 358; 
doubt  of  its  permanent  elTeclive' 
ness,  359-361;  permits  .souk;  di,s. 
criminations,   361,   302;   i)riii(i|)al 


488 


Index. 


cain  from  its  enactment,  365- 
367. 

Rebates  and  drawbacks,  practice  of, 
175;  arguments  on  convenience  of, 
175,  176;  inadmissibility  of,  176, 
177 ;  prohibited  by  Reagan  bill,  334, 
352,  358. 

Redfield  on  Railways.autliorities  cited 
by  on  public -highway  doctrine, 
121-123;  on  use  of  eminent  domain 
to  take  one  railway  for  another 
better  suited  to  the  public  use,  431- 
433. 

Regulation  of  railways,  right  of  state 
to  exert,  125-135;  affirmed  in  Gran- 
ger cases,  126,  130,  131;  construc- 
tion of  charters,  128, 130-133;  prin- 
ciples and  necessity  of,  187-193; 
change  of  railway  theory  on,  251- 
254 ;  of  interstate  commerce  in 
power  of  Congress,  318-320;  by 
common  law  insufficient  in  prac- 
tice, 320-324;  three  forms  of,  pro- 
posed, 325,  326;  by  commissions, 
theory  of,  335-340;  experience  on 
state  commissions,  341-350;  plan 
of,  in  Reacan  bill,  350-302;  provi- 
sions of  New  York  bill,  362,  363; 
weakness  of  all  regulative  meas- 
ures, 363,  364;  affirmation  of  legis- 
lative power  of,  desirable,  365-367: 
e.xclusive  privileges  in  transporta- 
tion subject  to  regulation  as  a 
method  of  use,  390-392,  428. 

Remedy,  to  be  permanent,  must  re- 
move the  causes,  367;  to  be  attained 
by  restoring  character  of  public 
highways  to  railways  and  making 
the  functions  of  common  carriers 
free  to  all,  369-372;  practicability 
in  operations  of  railwa3's,  372-381 ; 
examples  of  joint  use  of  railways 
by  two  or  more  carriers,  382,  383, 
442-445;  public  right  to  use  of 
tracks  reserved  in  earlier  charters, 
372,  385,  386;  earlier  decisions  af- 
firming it,  387  ;  exclusive  privi- 
leges a  mode  of  use,  according  to 
later  deci-sions,  390-395;  remedial 
effects  of  free  competition  under 
this  reform,  401-424;  right  can  be 
enforced  under  earlier  decisions, 
424-427;  later  decisions  leave  mode 
of  use  to  regulation  of  legislatures, 
427-429;  rights  of  way  of  existing 
railways  can  be  taken,  b}'  power  of 
eminent  domt;iu,  to  establish  rail- 


ways free  to  public  use,  430-440; 
measures  required  to  secure  this 
remedy,  440-442;  questions  as  to 
details,  440-442;  example  of  Penn- 
sylvania state  railways,  442-444; 
freedom  of  use  of  railways,  by  the 
public,  the  es.sential  point,  444-446; 
conservative  nature  of  the  remedy, 
447,  448. 

Richmond,  etc..  Railway  vs.  Louisa 
Railway,  decision  on  condemna- 
tion of  one  railway's  right  of  way 
for  another,  438. 

River  transportation,  discriminations 
by  railways  against,  183,  184,  186. 

Rogers  m.  Burlington,  122. 

Salt  Company  t».  Guthrie,  decision 
against  contract  to  prevent  compe- 
tition, 230,  237. 

Sanford  r?.  Catawissa  and  TTilliams- 
port  Railroad,  decision  against  dis- 
criminations between  express  car- 
riers, 142. 

Scofield,  Schurraer,  &  Teagle,  suit  of, 
against  Lake  Shore  Railroad,  94, 
95;  example  of  common-law  rule 
of  direct  damages,  322,  323. 

Seaboard  pipe-line,  88, 89. 

Sedgwick,  Judge,  on  bonds  in  restraint 
of  trade,  235. 

Sharpless  r.«.  Mayor  of  Philadelphia, 
decision  that  railways  are  public 
highways,  120. 

Shippers,  discriminations  between, 
55-65, 168-187.  (See  laduidual  Din- 
criminatMns.) 

Short  haul  charged  more  than  longer. 
(See  Local  Discriminations.) 

Shrewsbury  and  Birmingham  Rail- 
way rs.  Northwestern  Railwa}^ 
English  decision  against  pooling 
contracts,  242. 

Southern  Express  cases,  131, 132, 142, 
143,  392. 

South  Improvement  Company,  con- 
tract with  railways,  69,  70. 

South  Pennsylvania  Railroad,  influ- 
ence in  producing  a  railway  war, 
and  sale  by  Vanderbilt,  202-204; 
constitutional  prohibition  involved, 
204,  205;  example  of  stock-water- 
ing, 270.  271. 

Standard  Oil  Compan3^  history  of  its 
rise,  67-89;  dictation  of,  to  petro- 
leum trade,  90,  91;  growth  of  its 
wealth,  91 ;  bribery  and  conspiracy 


Index. 


4S9 


against  competitors,  92,  93;  meas- 
ures to  prevent  revival  of  competi- 
tion, 96 :  pleas  in  defence  of,  97-108 ; 
responsibility  of  railways  for  its  mo- 
nopoly, 10-4-106;  its  "example  of 
pooling,  209, 210;  its  senatorial  rep- 
resentatives, 458,  459;  its  power  in 
the  Ohio  Legislature,  467. 

Stanton  xs.  Allen,  decision  against 
pooling  contract,  230,  237. 

State  railways,  European  example 
not  conclusive,  326,  327 ;  subject  to 
political  patronage,  327;  question- 
able as  a  remedy  for  present  evils, 
327-329  ;  example  of  abuses  in 
Pennsylvania  public  works,  442- 
444. 

Stock  manipulations  facilitated  by 
pooling,  233,  234;  and  by  stock- 
watering,  277,  278. 

Stock-watering  introduced  by  Fink's 
statement,  258;  examples  of,  259- 
271  ;  estimate  of  aggregate,  271, 
272;  four  methods'" of,  273,  274; 
effects  of  upon  investments,  275- 
280;  remedy  for,  280,  281;  its  bear- 
ing on  commerce,  281-283;  fur- 
nishes provocation  and  excuse  for 
pooling,  283,284;  competition  pre- 
vents earning  of  profits  on  watered 
stock,  284,  285. 

Strong,  Justice,  aflirmed  public  high- 
way doctrine,  121;  dissented  from 
Granger  decisions,  126  ;  decision 
on  Pennsylvania  Supreme  Bench 
against  discriminations,  140,  141: 
view  on  exclusive  privilege  of 
transportation  on  public  highway.^, 
390-392,  428,  429. 

Swayne,  Justice,  rule  of  construction 
on  railwa}'  charters,  129. 

Talcott  ra.  Township  of  Pine  Grove, 
exclusive  privilege  of  transporta- 
tion a  mode  of  use,  391,  392. 

Tolls,  grant  of  right  to  fix,  construed 
as  subject  to  regulation  by  tlie  leg- 
islature, 131,  132;  must  be  stipu- 
lated, reasonabh',  and  uniform.  136, 
137;  perversion  of  grnnt  in  railway 
charters,  385,  386;  proiiil>itory  tolls 
used  to  ol)tain  exclusive  control  of 
transportation.  38G;  if  tolls  arc  ])ro- 
hibitory,  charter  is  uncon.sliluliou- 


al.  118,  387,  388:  adjustment  of, 
for  railways  on  which  transporta- 
tion is  free  to  the  public,  396^00. 

Transcontinental  rates,  example  of 
discrimination  in,  52. 

Twells  ts.  Pennsylvania  Railroad,  de- 
cision against  discriminations  in 
favor  of  a  connecting  line,  140, 
141. 

Vanderbilt,  recognized  principle  of 
public  highway,  113;  ikfinilion  of 
pooling,  196  ;  characterization  of 
West  Shore  project,  203;  connec- 
tion with  South  Pennsylvania  proj- 
ect, 202-204 ;  connection  with  stock- 
watering,  270. 

Vincent  vs.  Chicago  and  Alton  Rail- 
road, decision  against  discrimina- 
tions between  grain  elevators,  145, 
146. 

Waite,  Chief -justice,  aflirmed  right 
of  regulation  in  Granger  cases,  126. 

Walworth,  Chancellor,  decided  that 
railways  must  be  public  highways, 
117,  118;  application  of  decision, 
127,  128,  136,  387,  889,  425. 

Wars  of  rates, waged  to  enforce  com- 
bination, 200-206;  violence  of,  in- 
crea.sed  by  pooling.  232;  stimulated 
by  stoc-k-inllation,  276-278;  not  nat- 
ural competition,  302-305;  would 
be  impo.ssible  if  competition  is  un- 
restricted, 305-307;  injurious  to 
public  and  railways,  307. 

"Wells,  Fargo.  &  Co.  i'».  Oregon  Rail- 
way, etc.,  132. 

West  River  Bridge  Comj^any  r.t.  I)ix, 
condemnation  of  a  bridge  franchise 
for  a  public  higiiway,  •i;J3-T36. 

West  Shore  Railroad,  jiosition  in 
railway  war,  202,  203;  example  of 
stock-watering,  269,  270;  example 
of  paralleling,  418. 

White  River  Turnpik(>  Company  r». 
Vermont  (Vnlial  Hailrond.  con- 
demnation of  a  turnpike  fur  a  rail- 
way. 437. 

Winona  and Mcmphis.di.scriminalion, 
51;  discussion  of,  158-165. 

Woodbury,  Justice,  exdusiveno.ss  of 
cliarter  grants  subject  lo  right  of 
eminent  domain,  432-436. 


TlJJi  EKO. 


ERRATUM. 
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